[2022] KECA 539 (KLR)

Marteve Guest House Limited v Njenga & 3 others (Civil Appeal 400 of 2018) [2022] KECA 539 (KLR) (28 April 2022) (Judgment) (with dissent - W Karanja, JA)

Neutral citation: [2022] KECA 539 (KLR)

Republic of Kenya

In the Court of Appeal at Nairobi

Civil Appeal 400 of 2018

RN Nambuye, HM Okwengu & W Karanja, JJA

April 28, 2022

Between

Marteve Guest House Limited

Appellant

and

Daniel Muiruri Njenga

1st Respondent

Paul Kagunda Njenga

2nd Respondent

Standard Chartered Bank of Kenya Ltd

3rd Respondent

Joseph Wachira Njuguna Njenga

4th Respondent

(An Appeal from the Judgment of the Environmental & Land Court (K. Bor, J.) dated on 12th September, 2018 in Nairobi ELC Case No. 328 of 2013)

Service of statutory and redemption notices to persons who were not administrators of a deceased’s chargor’s estate but later on appointed as administrators is not proper service.

The deceased had charged the suit property to the 3rd respondent, Standard Chartered Bank (the bank), as security for financial facility advanced to the 4th respondent who defaulted in the repayment. The deceased died on July 27, 2009 and on December 29, 2009, the bank issued a demand letter to the 4th respondent for payment of the outstanding amount. The 4th respondent did not make any payment and consequently the bank exercised its statutory power of sale and sold the property to the appellant. Aggrieved the 1st and 2nd respondents filed a suit in the trial court, in their capacity as administrators of the estate of the deceased seeking an order for cancellation of the sale of the suit property to the appellant, as well as general damages. The trial court ruled in favour of the 1st and 2nd respondents and cancelled the appellant’s title. The appellant being aggrieved by the judgment filed the instant appeal. The court held that the appellant’s title had its roots in the bank’s flawed process in the exercise of its statutory power of sale on the basis of which the appellant got title to the suit property, the title was tainted with fraud, nullity, irregularly and illegality. The appellant’s plea of an innocent purchaser for value without notice to either title or the process resulting in it being vested with title to the suit property was unsanctionable.

Reported by Kakai Toili

Land Law– charges – redemption of charges – chargee’s statutory power of sale – requirements to be met before a chargee could exercise the statutory power of sale – claim that a bank sought to exercise its statutory power of sale over the property of the estate of a deceased chargor – where the statutory notice and redemption notice was served upon a person who was not an administrator of a deceased’s estate - whether service of a statutory notice and a redemption notice upon a person who was not an administrator of a deceased’s estate but later on appointed as an administrator was proper service - what was required of a bank, as a chargee, so as to exercise its statutory power of sale as related to a deceased chargor’s property where letters of administration had not been issued - what was the impact of wrongful exercise of a bank’s statutory power of sale on the purchase of property by an innocent purchaser for value without notice - Land Act, 2012, section 99; Registered Land Act, Cap 300 (repealed), sections 74, 77(3) and 143. Land Law– mortgages – mortgagees - obligation of mortgagees in the exercise of the statutory power of sale - what were the guiding principles with regard to the obligation of a mortgagee in the exercise of the statutory power of sale.Land Law– charges – redemption of charges – where a chargor passed on before a charge was settled - whether a deceased’s right of redemption become extinct upon the death of the deceased – whether a deceased’s property which was charged to a bank was free property to be inherited by the beneficiaries of the deceased’s estate - Law of Succession Act, Cap 160, sections 45(1) and 82. Land Law– charges – redemption of charges – chargee’s statutory power of sale - claim that there was fraud in the process of exercising the statutory power of sale by a chargee – guiding principles on role of a court when confronted with a claim of fraud in the process of exercising the statutory power of sale of a bank - claim that the buyer of the property sold by a charge bank was an innocent purchaser for value without notice - whether one was an innocent purchaser for value without notice where the title to the property had its roots in a bank’s flawed process in the exercise of its statutory power of sale - what were the elements for qualification of a party as a bona fide purchaser - what were the elements of unjust enrichment.Jurisdiction– jurisdiction of courts – jurisdiction to consider issues not contained in pleadings - under what circumstance could a court consider issues not contained in pleadings.Evidence Law– burden and standard of proof – standard of proof in claims of fraud - what was the standard of proof required to prove fraud.Law of Equity– equitable doctrines – estoppel – guiding principles – applicability in a dispute where a bank exercised its statutory power of sale against a deceased’s estate that had not taken out letters of administration - what were the guiding principles of the doctrine of estoppel - whether the doctrine of estoppel operated in favour of the bank to exercise its statutory power of sale against the property of an estate that had not taken out letters of administrationWord and Phrases– bona fide purchaser – definition of bona fide purchaser - one who buys something for value without notice of another claim to the property and without actual or constructive notice of any defects in or infirmities, claim or equities against the seller’s title; one who had in good faith paid valuable consideration for property without notice of prior adverse claims - Black’s Law Dictionary, 8th Edition.Words and Phrases– fraud - definition of fraud - a knowing misrepresentation of the truth or concealment of a material fact to induce another to act on to his or her detriment - Black’s Law Dictionary, 9th Edition at page 131.

Brief facts The deceased had charged the suit property to the 3rd respondent, Standard Chartered Bank (the bank), as security for financial facility advanced to the 4th respondent who defaulted in the repayment. The deceased died on July 27, 2009 and on December 29, 2009, the bank issued a demand letter to the 4th respondent for payment of the outstanding amount. The 4th respondent did not make any payment. Consequently, on July 22, 2010 the bank issued statutory notices of intended sale of the suit property to 1st and 2nd respondents, who are beneficiaries of the deceased’s estate. By that time, no grant had been issued to the 1st and 2nd respondents.The 1st and 2nd respondents were issued with a grant of letters of administration on August 2, 2011. The bank instructed an auctioneer to sell the suit property, the auctioneer served the 1st and 2nd respondent with a 45 days’ redemption notice on May 6, 2011, and on September 14, 2011 the auctioneer sold the suit property and declared the appellant the highest bidder for the suit property. Subsequently the appellant paid the full purchase price, a certificate of sale was issued to it, a transfer registered, and title issued in its favour. Aggrieved the 1st and 2nd respondents filed a suit in the trial court, in their capacity as administrators of the estate of the deceased seeking an order for cancellation of the sale of the suit property to the appellant, as well as general damages.The 1st and 2nd respondents did not dispute that the deceased executed a charge and further charge in favour of the bank. They however disputed the deceased’s sanctioning of the bank’s conversion of the said instruments into overdraft facilities in favour of the 4th respondent. They further claimed that it was as a result of the 4th respondent’s failure to pay the sums arising from the overdraft facilities that the bank set in motion the process to realize its security in the suit property. The trial court ruled in favour of the 1st and 2nd respondents and cancelled the appellant’s title. The appellant being aggrieved by the judgment filed the instant appeal.

Issues

Whether service of a statutory notice and a redemption notice upon a person who was not an administrator of a deceased’s estate but later on appointed as an administrator was proper service.

What was required of a bank, as a chargee, so as to exercise its statutory power of sale as related to a deceased chargor’s property where letters of administration had not been issued.

What were the guiding principles with regard to the obligation of a mortgagee in the exercise of the statutory power of sale?

Whether a deceased’s right of redemption became extinct upon the death of the deceased?

What was the impact of wrongful exercise of a bank’s statutory power of sale on the purchase of property by an innocent purchaser for value without notice?

What were the guiding principles on role of a court when confronted with a claim of fraud in the process of exercising the statutory power of sale of a bank?

What was the standard of proof required to prove fraud?

What were the elements for qualification of a party as a bona fide purchaser?

Whether one was an innocent purchaser for value without notice where the title to the property had its roots in a bank’s flawed process in the exercise of its statutory power of sale.

Whether a deceased’s property which was charged to a bank was free property to be inherited by the beneficiaries of the deceased’s estate.

What were the elements of unjust enrichment?

Under what circumstances could a court consider issues not contained in pleadings?

What were the guiding principles of the doctrine of estoppel?

Whether the doctrine of estoppel operated in favour of the bank to exercise its statutory power of sale against the property of an estate that had not taken out letters of administration

Held Per RN Nambuye, JA A first appellate court was required as stipulated explicitly in rule 29(1) of the Court of Appeal Rules to reappraise, re-evaluate, re-analyze the record, and draw out a conclusion thereon and give reasons either way. There was no specific pleading that the appellant was a bona fide purchaser of the suit property for value without notice of any defect either in the title or the process that led to its acquisition of title to the suit property through sale by public auction. Both parties and the court were bound by the pleadings proffered by the parties as basis for seeking a court’s intervention in any civil litigation. The only exception arose where there was sufficient demonstration on the record that parties by their conduct at the trial raised the issue(s) and left them to the trial court to determine.

There was sufficient demonstration on the record that parties by their conduct invited the trial court to interrogate and express itself on the issue as to whether the appellant was an innocent bona fidepurchaser of the suit property for value without any notice of any defect either in the title or the process under which it acquired title to the suit property, even in the absence of any specific pleading in the appellant’s defence to that effect.

When a registered proprietor’s root of title was under challenge, it was not sufficient to dangle the instrument of title as proof of ownership. It was that instrument of title that was in challenge and the registered proprietor had to go beyond the instrument and prove the legality of how he acquired the title and show that the acquisition was legal, formal and free from any encumbrances including any and all interests which needed not be noted on the register.

The contracts executed by the bank, the deceased and the 4th respondent forming the substratum of the appeal were subject to sections 65, 69, 72, 74 and 77(3) and (4) of the repealed Registered Land Act, Cap 300, Laws of Kenya (RLA). Cumulatively, they anchored the chargor’s right of redemption and the bank’s right to realize the security in the event of any default on the part of the chargor to repay the indebtedness to the bank as chargee.

The guiding principles with regard to the obligation of a mortgagee in the exercise of a statutory power of sale could be summarized as follows: a mortgagee had a duty to act in good faith;

have regard to the interests of the mortgagor;

obtain the best price for the property realized to pay off the debt for the benefit of both the mortgagor and the mortgagee;

ensure that its power of sale was not exercised fraudulently; and

ensure that the mortgagor’s right of redemption was only lost pursuant to a valid sale.

In sum, the mortgagee had a duty to ensure that the exercise of the statutory power of sale was not tainted by some kind of impropriety.

Compliance with the prerequisites with regard to service of the notice on to the chargor was mandatory and noncompliance with that prerequisite rendered the entire process undertaken by the chargee to realize the security invalid. The bank did not move to exercise its statutory power of sale during the lifetime of the deceased. That was why documents informing the process were served on the estate of the deceased, represented by the 1st and 2nd respondents before they were appointed administrators of the estate of the deceased on August 2, 2011.

Pursuant to section 74(3) and (4) of the RLA which the bank exercised its statutory power of sale, there was nothing therein to suggest that the bank was not obligated to comply with the provisions of the Law of Succession Act, Cap 160, Laws of Kenya (LSA) in circumstances where the exercise of that power was undertaken after the death of the chargor.

By free property as defined in the Law of Succession Act was meant the property of which the deceased person was legally and competent to freely dispose of the same during his/her lifetime and in respect of which his/her interest had not been terminated by his/her death. The deceased’s right of redemption did not become extinct upon the death of the deceased. It devolved to the personal representatives. It is the reason the Law of Succession Act did not donate power to the estate of a deceased person to deal with property forming that deceased person’s estate, and instead donated that power to an administrator with a will or a personal representative to the intestate estate of a deceased person to deal with a deceased person’s property after the death of such a deceased person.

Section 45(1) of the Law of Succession Act was explicit that dealings with a deceased person’s property was only permissible to the extent provided for by the provisions of that Act. Among them was provision that only persons holding a grant of representation to a deceased person’s estate had mandate to transact any business with regard to such property and to the extent provided for in section 82 of the Law of Succession Act on powers donated to a personal representative.

Estoppel usually goes hand in hand with waiver. The commonest were estoppel by conduct and estoppel by election or waiver. Waiver was intentionally relinquishing of a right or privilege; the primary meaning of the word waiver in legal parlance was the abandonment of a right in such a way that the other party was entitled to plead the abandonment by way of confession and avoidance if the right was thereafter asserted. It was either express or implied from the conduct.

In the absence of the bank demonstrating that the chargor’s right of redemption became extinct upon her death; nor existence of any other provision of law other than the Law of Succession Act Procedures under which the bank could have moved to exercise its statutory power of sale after the death of the deceased who was the charger; coupled with lack of explanation on the part of the bank as to why it directed auctioneers to serve the estate of the deceased left no doubt that the bank was obligated in law to invoke the process for the exercise of its statutory power of sale within the remit of the procedures provided for in the Law of Succession Act.

There was nothing in the guiding principles on invocation and application of both the doctrine of estoppel and waiver to suggest that they overrode clear provisions of law. It did not matter that the 1st and 2nd respondents held themselves out to the bank as duly authorized administrators with the mandate to act on behalf of the estate of the deceased when they were not. That conduct on their part could not be sanctioned to oust the operation of clear provisions of law with a view to sanitizing the flawed process vitiated by the trial court.

Elements/ingredients for qualification of a party as a bona fide purchaser were, namely, proof that the claimant; held a certificate of title;

purchased the property in good faith;

had no knowledge of the fraud;

the vendors had apparent valid title;

purchased without notice of any fraud; and

he was not party to any fraud.

The guiding principles on role of the court when confronted with an appeal of the instant nature were: No court ought to enforce an illegal contract or allow itself to be made the instrument of enforcing the obligations alleged to arise out of a contract or transaction which was illegal, if the illegality was duly brought to the notice of the court.

Where an act was a nullity it was void and every proceeding founded on it was also in law a nullity.

Every act premised on a nullity could not accrue legitimacy or legality.

Sanctity of title was never intended or understood to be a vehicle for fraud and illegalities or an avenue for unjust enrichment at another person’s expense.

A court of law could not protect title to land which had been obtained illegally or fraudulently merely because a person was entered in the register as proprietor.

Proof of fraud was slightly higher than a balance of probabilities but slightly lower than proof beyond reasonable doubt. No fraud was attributed to the appellant by the 1st and 2nd respondents in their plaint hence its assertion that the fraud attributed to the bank and the 4th respondent should not have been applied by the trial court to vitiate its title to the suit property. On proof of fraud, the fraud attributed to the bank and the 4th respondent were proved to the required threshold. Admission on the part of the 4th respondent was sufficient demonstration of collusion between him and the bank through its staff to convert the charge and further charge into overdraft facilities without the consent, knowledge and participation of the deceased to the detriment of the deceased’s interest in the suit property.

Failing to pay off the overdraft facilities accorded to him by the bank and or even demonstration of his willingness to do so. His conduct of being indifferent to the plight of the beneficiaries of the estate of the deceased in the wake of the threat of dispossession of the suit property through the flawed process initiated by the bank in its purported move to realize the security in the suit property was deplorable and deserved not only condemnation in the strongest possible terms but should also neither be countenanced nor condoned by a court of law.

Illegalities and irregularities were proved to the required threshold based on the fact that the bank well knowing that in law it could only invoke its statutory power of sale upon service of a demand and notification of sale on a chargor, purported to comply with that prerequisite by purporting to serve the processes on the estate of the deceased a process not provided for in law either under the Registered Land Act or Law of Succession Act as none was pointed out to the court by the bank. Want of compliance with the Law of Succession Act provisions by the bank in the exercise of its statutory power of sale rendered the entire process an illegality and therefore null and void. Once an act was null and void, it amounted to nothing. No right could be founded on it.

Since the appellant’s title had its roots in the bank’s flawed process in the exercise of its statutory power of sale on the basis of which the appellant got title to the suit property, the title was tainted with fraud, nullity, irregularly and illegality. The appellant’s plea of an innocent purchaser for value without notice to either title or the process resulting in it being vested with title to the suit property was unsanctionable.

The 1st and 2nd respondents instructed an advocate to demand the proceeds on their behalf, the record was silent as to whether the balance of the proceeds was ever paid out to the 1st and 2nd respondents and if so, how much and when the same was paid out. The plea of unfair and unjust enrichment levelled against the 1st and 2nd respondents by the appellants was not founded on the facts on the record.

Failing to pay off the overdraft facilities accorded to him by the bank and or even demonstration of his willingness to do so. His conduct of being indifferent to the plight of the beneficiaries of the estate of the deceased in the wake of the threat of dispossession of the suit property through the flawed process initiated by the bank in its purported move to realize the security in the suit property was deplorable and deserved not only condemnation in the strongest possible terms but should also neither be countenanced nor condoned by a court of law.Per H Okwengu, JA (Concurring)

The bank’s statutory power of sale having been exercised on September 14, 2011, the provisions of the Land Act (No 6 of 2012) that applied to the exercise of statutory power of sale having come into effect on May 2, 2012 after the impugned sale, could not act retrospectively. Therefore, the law applicable as at September 14, 2011 was the Registered Land Act.

Section 74 of the Registered Land Act gave a chargee remedies which included the right to sell the charged property. However, before that right could be exercised, the chargee was required to serve a notice on the chargor in writing, requiring him/her to pay the money owed or perform the agreement. That notice had to be served at least three months before the sale, and the sale could only take place if no payment was made. Section 77 of Registered Land Act gave the chargee the power to sell the charged property at a public auction through a licensed auctioneer, after the service of appropriate notices.

Copies of the petition for letters of administration that were on record showed that the 1st and 2nd respondents had filed the petition for letters of administration for the estate of the deceased on May 31, 2010. As at May 6, 2011 when they were served by the auctioneer, they had not obtained any grant as the grant was issued to them on August 2, 2011. The purported service of the statutory notice and the redemption notice upon the 1st and 2nd respondents on July 22, 2010 and May 6, 2011 respectively, was thus not proper service on the estate of the deceased, as the 1st and 2nd respondents had no authority to deal with the estate of the deceased before August 2, 2011 when they were issued with a grant.

The 1st and 2nd respondents as administrators of the estate of the deceased, did not act in their own capacity nor did they represent their own interest alone. They acted on behalf of all the beneficiaries of the estate and what they did in their personal capacity had to be distinguished from what they did in their capacity as administrators.

The issue of unjust enrichment was not pleaded nor canvassed in the trial court, nor was it raised in the defence of the bank or the 4th respondent or the appellant. The bank did not plead nor adduce any evidence that it paid the balance of the purchase price after offsetting the debt, to the 1st and 2nd respondents, nor was there any evidence regarding the amount of surplus after the debt was paid, and to whom payment was made or any acknowledgment for such payment. Hence, the court rejected the allegations of unjust enrichment on the part of the 1st and 2nd respondents.

Any estoppel or waiver that arose from the conduct of the 1st and 2nd respondents in engaging with the bank before they were issued with the grant, was limited to the interests of the two in the estate, and not the interest of all the beneficiaries.

Section 82 of LSA showed that it referred to powers of the personal representative of the deceased’s estate to sell the deceased’s property, and that power was only available to the personal representative after the confirmation of the grant. That limitation did not apply in a forced sale by a chargee exercising a statutory power of sale in regard to property charged by the deceased before death. The chargee only had to comply with the provisions of the law in regard to the exercise of the statutory power of sale.

As regards section 66 of the Law of Succession Act, as a chargee, the bank was not an ordinary creditor but occupied a privileged position as it had priority over the suit property that the deceased had charged to it. However, that privileged position did not deny the deceased or the deceased’s estate the right to pay off the debt and redeem the suit property. Section 3 of the Law of Succession Act defined free property in relation to a deceased person to mean the property of which that person was legally competent freely to dispose during his lifetime and in respect of which his interest had not been terminated by his death.

Having charged the suit property to the bank, the deceased was competent to dispose it during her lifetime subject to the bank’s consent, or her paying off the debt. Although her right of disposal was encumbered by the charge, her death did not automatically terminate her interest in the suit property. The property remained part of her estate subject to the debt. It was therefore free property that could be inherited by the beneficiaries of the estate of the deceased subject to the encumbrance.

As chargee, the bank had the option under section 66 of Law of Succession Act to apply for letters of administration for the estate of the deceased to enable it exercise its statutory power of sale. Nevertheless, in light of the bank’s interest in the suit property, and the rights of the deceased’s beneficiaries, the bank could only exercise that option by applying to have a person or persons entitled to a grant of letters of administration for the estate of the deceased chargor appointed as such by the court. That would have enabled the bank to serve the estate of the deceased with the necessary notices through the appointed administrators, to give an opportunity for the estate to pay the debt failing which the bank would be able to pursue its statutory right of sale, the administrators stepping into the shoes of the deceased chargor. The bank did not follow that avenue and the estate of the deceased was not given an opportunity to redeem the suit property before the sale. To that extent the bank’s statutory power of sale had not accrued.

Fraud had to be specifically pleaded and particulars of the fraud alleged had to be stated on the face of the pleadings. The acts alleged to be fraudulent had to be set out, and then it should be stated that those acts were done fraudulently. Fraudulent conduct had to be distinctly alleged and as distinctly proved, and it was not allowable to leave fraud to be inferred from the facts.

The deceased did not sign the overdraft facility documents and therefore, did not consent to the charge and further charge being converted to an overdraft banking facility. That showed that the variation was done contrary to section 71 of the Registered Land Act. It also provided clear evidence of the fraud perpetrated upon the deceased by the bank and the 4th respondent. Thus, the 1st and 2nd respondents established the particulars they pleaded and thereby discharged the burden of proving the fraud that they alleged against the bank and the 4th respondent.

The fraud rendered void the purported exercise of the bank’s statutory power of sale. The bank could not therefore purport to exercise its statutory power of sale in regard to the original charge and further charge as the same was no longer available to it. Nor could the bank anchor its statutory power of sale on the subsequent overdraft facility as the deceased was not party to it, nor was the overdraft facility secured by the title to the suit property.

The bank’s statutory power of sale did not arise as there was no evidence of any default arising from the original charge or further charge signed by the deceased, and the purported exercise of the power of sale was also irregular as no statutory notice was served on the deceased’s estate. The purported exercise of the statutory power of sale by the bank was void and the bank was liable to the deceased’s estate in selling the suit property.

Although the valuation of the suit property was purported to have been done in October 2010, there was no specific reference to the valuation before the sale of the suit property. The bid of Kshs 15,300,000 by the appellant was reasonable, given the valuation by the consultants. The court rejected the allegation of sale at an undervalue as the auction sale, being a forced sale, the highest bid was dependent on the response to the auction, and therefore not predictable.

The appellant having paid the full purchase price, the suit property was transferred to it, and a title issued in its name. There was no evidence that the appellant was complicit in or had any knowledge of any fraudulent dealings involving the sale of the suit property or irregularities concerning the exercise of the statutory power of sale by the bank. The appellant was therefore an innocent purchaser for value without notice.

The power of the court to order cancellation of a transaction that had been procured by fraud or mistake was circumscribed by section 143 of Registered Land Act. A plain reading of section 143 revealed that the court could only order cancellation of registration of a title where fraud was established in the case of a proprietor who was in possession and acquired the property for valuable consideration, where it was established that the proprietor was either complicit in the fraud or had knowledge of the fraud, and was therefore not a bona fide purchaser for value without notice. In addition, section 77(3) of the Registered Land Act provided that once the sale was registered, a person who was aggrieved by an irregular exercise of a chargor’s statutory power of sale was only entitled to damages against the person exercising the power.

There was a distinction between an auction sale which was rendered irregular during the sale and a sale which was void because the statutory power of sale either had not accrued or was vitiated by fraud. While an innocent purchaser in an irregular sale could be saved by section 77(3) of the Registered Land Act, that section could not help an innocent purchaser in the case of a void sale, particularly in a situation such as the instant case where the bank was complicit in the fraud and had unlawfully sold the suit property.

Despite the court having the obligation to protect an innocent purchaser for value at an auction sale, bank financing was critical to the economy of Kenya and fraudulent realization of security by a large bank such as the 3rd respondent, could not be allowed to take root by the court protecting an innocent purchaser who was the ultimate beneficiary in such a transaction. It would be inimical to justice and public interest to allow a situation where a bank conspired to deliberately sell property belonging to a dead person, when the property was not charged as security for the outstanding debt, and the deceased’s estate had not even been served with any statutory notice.

Unlike the Land Act, where by virtue of section 99(3), an innocent purchaser for value, was protected even where the charged property was sold when there had been no default by the chargor, or when no statutory notice had been served on the chargor, or the sale was in some way, unnecessary, improper or irregular, the Registered Land Act did not have a similar provision. Section 77(3) of Registered Land Act did not provide a blanket protection but only protected in the case of an irregular auction sale, not a sale that was void and illegal. The sale of the suit property to the appellant was void and the appellant’s remedy lay in damages against the bank and not the estate of the deceased.

Dissenting opinion Per W Karanja, JA Section 99 of the Land Act, 2012 was clear that a purchaser of property sold in the exercise of a chargee’s statutory power of sale was protected even in cases where the person had actual notice that the chargee had not properly exercised that statutory power of sale in terms of procedure. There was no evidence to show that the appellant had any notice of any irregularities in the planned sale and evidence suggested that there were none anyway. The appellant was then inoculated by section 99 from any action to recover the suit property from it.

Even assuming that the auction was not properly conducted, unless it was demonstrated that the appellant was privy to the fraud or other irregularities in the disputed auction, the sale of the suit property could not be impugned. There was no proper basis for holding that the auction done was unlawful or irregular. Consequently, there was no reason to nullify it and no reason to make an order that the title to the suit property reverts to the 1st and 2nd respondents.

The elements of unjust enrichment required that a party who had received a benefit unjustly, was required to make restitution to the other party. It presupposed that; - a party had been enriched by the receipt of a benefit;

that he had been so enriched at the expense of the giver; and

that it would be unjust to allow him to retain the benefit.

The undisputed facts in the instant case were that the 1st and 2nd respondents; informed the bank that their mother/the guarantor had died; commenced negotiations with the bank on behalf of the estate with full knowledge that they lacked that capacity as they did not have letters of administration at that point; accepted the statutory notices but not in the name of the chargor and received some proceeds from the auction. In the light of non–contestation of those facts, the scales of justice tilted in the appellant’s favour. He who came to equity had to come with clean hands. The suit in the superior court should have failed the moment the court found the respondents’ hands to be heavily tainted.

The judgment and orders of the trial court that the suit property to revert to the estate for the benefit of the 1st and 2nd respondents and the other beneficiaries of the estate and allowing them to retain the amount paid to them by the bank amounted to unjust enrichment which Kenya’s justice system frowned upon.

The bank abdicated its fiduciary duty to the deceased in her death and engaged in acts that were unbecoming of an institution of the 3rd appellant’s stature and repute. Other than serving the statutory notice on parties with no legal capacity to receive them, thus rendering such service invalid, the bank was not an intermeddler as prescribed under section 45 of the LSA as the property in question was not part of the deceased’s free estate, it having been charged to the bank to secure a loan which had not been repaid in full.

The recourse available to the 1st and 2nd respondents lay in pursuing the bank for damages as per section 99(4) of the Land Act. From the record of appeal, there were arguments by the 1st and 2nd respondents that the suit property was undervalued during the sale. They had a good chance of pursuing the bank for the difference in value, if at all proved and for any other damages they could claim to have incurred.

The dissenting court would allow the appeal with costs as against all the respondents jointly and or severally. The court would set aside the impugned judgment and all consequential orders arising therefrom and substitute therefor an order dismissing the 1st and 2nd respondents’ claim in ELC No 328 of 2013 with costs.

Appeal dismissed; costs awarded to the 1st and 2nd respondents.

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Madhupaper International Ltd & another v Kenya Commercial Bank Ltd & 2 others [2003] KLR 31 - (Explained)

Maina, Munyu v Hiram Gathiha Maina Civil Appeal 239 of 2009; [2013] eKLR - (Explained)

Mbuthia v Jimba Credit Finance Corporation & another [1988] KLR 1; [1986-1989] EA 340 - (Followed)

Migore, Daniel Otieno v South Nyanza Sugar Co Ltd Civil Appeal 52 of 2017; [2018] eKLR - (Explained)

Morjaria, Vijay v Nansingh Madhusing Darbar & another Civil Appeal No 106 of 2000; [2000] eKLR - (Explained)

Mukiri, Lawrence v Attorney General & 4 others Environmental & Land Case 169 of 2008; [2013] eKLR - (Explained)

Mwangangi, Sammy & 10 others v Commissioner of Lands & 3 others Civil Appeal 30 of 2013; [2018] eKLR - (Explained)

Mwobi, Serah Njeri v John Kimani Njoroge Civil Appeal 314 of 2009; [2013] eKLR - (Explained)

Ngomba, David Katana v Shafi Grewal Kaka Civil Appeal 43 of 2011; [2014] eKLR - (Explained)

Nyangilo Ochieng & another v Fanuel B Ochieng & 2 others [1995-1998] 2 EA 260 - (Explained)

Ochieng, Nyangilo & another v Fanuel B Ochieng & 2 others Civil Appeal 148 of 1995; [1996] eKLR - (Applied)

Odd Jobs v Mubia [1974] EA 476 - (Explained)

Ole Nganai v Arap Bor [1983] KLR 233 - (Explained)

Railal Gordhanbhai Patel v Lalji Makanji [1957] EA 314 - (Applied)

Ranguma, Jackton Nyanungo v Independent Electoral and Boundaries Commission & 2 others Election Petition 3 of 2017; [2017] eKLR - (Mentioned)

Ruhangi Properties Limited & 2 others v Standard Chartered Bank of Kenya Ltd & 2 others Civil Case 1885 of 1999; [2000] eKLR - (Mentioned)

Seascapes Ltd v Development Finance Company of Kenya Ltd Civil Appeal 247 of 2002; [2009] eKLR - (Followed)

Selle & another v Associated Motor Boat Company Ltd & others [1968] 1 EA 123 - (Followed)

Sita Steel Rolling Mills Ltd v Jubilee Insurance Co Limited Civil Suit 86 of 2000; [2007] eKLR - (Explained)

Wambui v Mwangi & 3 others Appeal 465 of 2019; [2021] KECA 144 (KLR) - (Followed)

United Kingdom John Spencer Harvey v Dunbar Assets PIC [2013] EWCA Civ 952 - (Explained)

Macfoy v United Africa Co Limited [1961] 3 All ER 1169; [1961] 3 WLR 1405; - (Followed)

Regional CourtCaptain Harry Gandy v Caspar Air Charters Limited (1956) 23 EACA 139 - (Followed)Texts Garner, BA., (Ed) (2004), Black’s Law Dictionary St Paul Minessota: Thomson West 8th Edn

Garner, BA., (Ed) (2009), Black’s Law Dictionary St Paul Minnesota: West Group 9th Edn p 131

StatutesKenya Constitution of Kenya, 2010 articles 27(1); 40 - (Interpreted)

Court of Appeal Rules, 2010 (cap 9 Sub Leg) rule 29(1) - (Interpreted)

Land Act, 2012 (Act No 6 of 2012) sections 90; 92(2); 99(3)(4); 162 - (Interpreted)

Land Registration Act, 2012 (Act No 3 of 2012) In general - (Cited)

Law of Succession Act (cap 160) sections 3, 45(1); 66; 82(b) - (Interpreted)

Registered Land Act (Repealed) (cap 300) sections 65, 69, 71, 72, 74(1)(3)94); 77(1)(3)(4); 79; 143 - (Interpreted)

AdvocatesMr Njoroge Baiya for appellantSimiyu Wabuge for for 1st and 2nd respondentsHiram Nyaburi for 3rd respondent

Judgment

Judgement of Nambuye, JA 1. This is a first appeal arising from the judgment of the High Court of Kenya in Milimani Environment and Land court (ELC) Cause No 328 of 2013 (K Bor, J) dated September 12, 2018.

2. The substratum of the litigation resulting in this appeal is LR No Ndumberi/Ndumberi/1234 (the suit property) originally registered in the names of Jane Wanjiru Kagunda, now deceased (the deceased). On August 19, 2005 and July 7, 2006 respectively, the deceased executed a charge and further charge in favour of Standard Chartered Bank of Kenya Ltd, the 3rd respondent, (the bank) using the suit property as security to secure financial facilities in favour of Joseph Wachira Njuguna Njenga, the 4th respondent (4th respondent) in the sum of KShs 1,500,000. 00 and Kshs 2,520,000. 00 respectively. On July 23, 2007 and April 20, 2009 the bank converted the above instruments into overdraft facilities in favour of the 4th respondent to the total tune of KShs 5,600,000. 00 for each conversion.

3. The deceased passed on, on July 27, 2009. On December 29, 2009 and January 8, 2010 respectively, the bank issued a demand letter to the 4th respondent demanding payment of KShs 5,926,309. 20 and 6,050,396. 45 respectively, both in respect of funds advanced to him as overdraft facilities. He failed to meet those demands. On July 22, 2010, the bank through its advocates demanded from the 1st and 2nd respondents described as administrators of the estate of Jane Wanjiru Kagunda payment of KShs 6,944,590. 20 arising from the overdraft facilities accorded to the 4th respondent within three (3) months of the said date, in default, the bank would proceed to realize the security. They also failed to meet the bank’s demands within the timeline stipulated in the demand letter. On April 29, 2011, the bank through its advocates issued instructions to M/s Leakeys Auctioneers to issue a 45 days’ notification of sale of the suit property to the estate of Jane Wanjiku Kagunda (deceased), on account of the amount outstanding as at April 28, 2011 namely, KShs 7,802,931. 75, together with additional charges of KShs.128,000. 00 plus VAT, auctioneers charges, and giving the reserve price as KShs.11,550,000. 00.

4. On May 6, 2011 M/s Leakeys Auctioneers simultaneously issued to the “estate of the deceased” a forty-five (45) days’ notice to pay KShs 7,802,931. 75, in default of which the suit property would be sold by public auction on July 13, 2011. On June 15, 2011, June 30, 2011, July 6, 2011, July 7, 2011, July 8, 2011 and July 11, 2011 respectively, the 1st and 2nd respondents holding themselves out to the bank as administrators of the estate of the deceased engaged in negotiations with the bank resulting in the bank waiving interest of KShs 2,000,000. 00 from the outstanding amount and also to suspend the auction for thirty days effective July 13, 2017.

5. On 2nd August, 2011, the 1st and 2nd respondents were appointed administrators of the estate of the deceased. They however failed to pay off the debt to the bank by August 13, 2011 as stipulated for by the bank in the letter rescheduling the auction for thirty (30) days effective July 13, 2011July 13, 2011. On August 29, 2011, Leakey’s Auctioneers advertised the suit property for sale by public auction on September 14, 2011 outside General Post Office - Kiambu Town starting at 11. 00am. On 13th September, 2011, the firm of Kimani Charagu & Co Advocates on behalf of the 1st and 2nd respondents, wrote to the bank warning the bank against proceeding with the auction as then scheduled for September 14, 2011, reason being that since the process initiated by the bank to realize its security in the suit property on May 6, 2011 was initiated after the death of the deceased on July 27, 2009 and before the 1st and 2nd respondents were appointed as administrators of the estate of the deceased on August 2, 2011, the entire process was flawed, and therefore null and void. The bank was advised to call off the auction and restart the process afresh since the 1st and 2nd respondents had of that date been duly appointed as administrators of the deceased’s estate, with a rider that in the event the bank failed to heed the above warning, they had instructions to sue the bank for any loss occasioned to the estate of the deceased as a result of the bank proceeding on to conduct the then impending auction.

6. The bank did not heed the above warning and or advise and proceeded with the auction as then scheduled for September 14, 2011, duly conducted and Marteve Guest House, the appellant herein emerged the highest bidder, paid the requisite deposit of KShs 6,300,000. 00. On the same September 14, 2011 the 1st and 2nd respondents instructed the firm of Muthoga Gaturu & Co Advocates to receive the balance of the proceeds of the auction on their behalf. The said firm requested for the said balance of proceeds of sale on September 23, 2011. The record is however silent as to whether the said amount was paid over to the 1st and 2nd respondents as requested for, and if so, how much it was. On October 3, 2011, October 14, 2011, October 24, 2011, and December 13, 2011, the firm of Mucheru-Oyatta Advocates on behalf of the bank, the firm of Mumo Mutoru & Co, on behalf of the appellant and M/s Leakeys Auctioneers exchanged correspondences with a view to finalizing the sale in favour of the appellant. M/s Leakeys Auctioneers duly issued a Certificate of Sale, the appellant completed payment of the purchase price as well as other attendant charges. The bank released all the necessary documentation duly executed by its authorized Attorney to the appellant’s advocate to facilitate the registration of title to the suit property in favour of the appellant.

7. My observations on the totality of the documentation assessed above is that although the amount forming the demands issued by the bank to the 4th respondent on December 29, 2009 and January 8, 2010 explicitly stated that the sums forming those demands arose from the 4th respondent’s default on payment of his overdraft facilities, the statutory notice and demand notice issued by Leakeys Auctioneers to the estate of the deceased indicated explicitly that sums forming those processes, arose from the default to pay the debt arising from the charge and further charge. Likewise, on October 26, 2011 and December 13, 2011, when the advocates for the bank responded to the request from the appellant’s advocates to forward to them title documents to complete the sale, and which the bank’s advocates indeed forwarded to the appellant’s advocates, these did not also include documentation on the two overdraft facilities on the basis of which the bank moved to exercise its statutory power of sale. Neither were the overdraft facilities registered against the title to the suit property.

8. On November 15, 2012, the firm of AM Lubulellah & Associates acting on behalf of the 1st and 2nd respondents simultaneously issued notices of intention to sue to the appellant, the bank and the 4th respondent respectively.

9. The plaint filed by the 1st and 2nd respondents against the appellant, 3rd and 4th respondents in Nairobi ELC Civil Suit No 328 of 2013 was dated February 15, 2013. In both their pleading and evidence tendered through Daniel Muiruri Njenga the 1st respondent (PW1) and Martin Esakina Papa, PW2 a forensic expert, was cumulatively that they do not dispute that the deceased executed a charge and further charge in favour of the bank on August 19, 2005 and July 7, 2006 respectively to secure financial facilities in favour of the 4th respondent. They however disputed the deceased’s sanctioning of the bank’s conversion of the above mentioned instruments into overdraft facilities in favour of the 4th respondent on July 23, 2007 and April 20, 2009 both in the sum of KShs.5,600,000. 00 respectively. That it was as a result of the 4th respondent’s failure to pay the sums arising from the overdraft facilities that the bank set in motion the process to realize its security in the suit property. PW2 a forensic expert examined alleged deceased’s endorsements on the overdraft facilities documents and found these forgeries hence the 1st and 2nd respondents’ assertions that the entre process undertaken by the bank to realize the security in the suit property was a fraud on the deceased and subsequently to beneficiaries of the deceased’s estate. The particulars of fraud attributed both to the bank and the 4th respondent were as particularized in the plaint. It was also the 1st and 2nd respondents’ contention that the process initiated by the bank to realize its security in the suit property was a nullity in so far as those processes were served on them before they were duly appointed as administrators of the estate of the deceased.

10. On the totality of the above, the 1st and 2nd respondents sought from the court an order cancelling title number Ndumberi/Ndumberi/1234 issued on October 6, 2012 in the names of the appellant, general damages, costs of the suit and interests at court rates.

11. In response to the 1st and 2nd respondents claim, the bank filed a defence dated April 12, 2013, on the basis of which it tendered evidence through its witness Boniface Muchoki. Cumulatively they admitted that: on July 23, 2007 and April 20, 2009, respectively it converted the charge and further charge instruments into overdraft facilities in favour of the 4th respondent to the total tune of KShs.5,600,000. 00 each; the deceased’s signatures on the impugned documents were allegedly witnessed by an unknown bank official who was never tendered to court to testify; it initiated the process to realize its security in the suit property after the death of the deceased; documents to realize the security were served on the 1st and 2nd respondents before they were appointed as administrators to the estate of the deceased. Denied particulars of fraud and bad faith attributed to it in the plaint. Asserted that the 1st and 2nd respondents should not be allowed to approbate and reprobate on the issue of want of capacity in them to be served with the banks process to realize the security in the suit property as they engaged the bank over the issue in that capacity and reaped benefits by getting a waiver of KShs 2,000,000. 00 interest on the loan and the rescheduling of the auction for thirty days effective July 13, 2011 all done in good faith to accord the 1st and 2nd respondents an opportunity to redeem the suit property.

12. The 4th respondent, Joseph Wachira Njurguna both in his defence dated March 4, 2014, and evidence admitted that indeed the deceased guaranteed financial facilities accorded to him by the bank through the first and further charge, subsequently converted into overdraft facilities on July 23, 2007 and April 20, 2009 respectively. He conceded the conversion of the first and further charge into overdraft facilities were never sanctioned by the deceased, as according to him, this was not necessary as these were mere extensions of the first and further charge. He also conceded that he had not repaid the loan as at the time the bank initiated the process to realize the security in the suit property. He however denied particulars of fraud attributed to him in the plaint.

13. The appellant’s statement of defence dated May 2, 2013 and evidence tendered through Kennedy Karume Kamithi, its Director was simply that they saw an advert for the sale of the suit property in the Daily Nation of August 29, 2011. He attended the public auction conducted on September 14, 2011 by Leakeys Auctioneers, bid at the auction and emerged the highest bidder, fully paid the deposit and subsequently the balance of the auction price. The appellant was subsequently lawfully vested with title to the suit property.

14. At the conclusion of the trial, the learned trial judge analyzed the record, and identified only one issue for determination, namely, “whether a valid sale of the suit property took place.” Considering this in light of the totality of the record as analyzed, the judge, made findings thereon, inter alia, that the bank not only appreciated but also conceded that as at the time it initiated the process to realize the security in the suit property and engaged the 1st and 2nd respondents with a view to settling the matter amicably, the 1st and 2nd respondents had not been appointed as administrators of the estate of the deceased. The bank however claimed that the 1st and 2nd respondents were estopped from purporting to fault the manner in which the bank exercised its statutory power of sale of the suit property because by their conduct they held themselves out as persons with authority to conduct business on behalf of the estate of the deceased and reaped benefits from the bank. The judge however discounted the bank’s explanation and ruled that the entire process as initiated by the bank went contrary to provisions of the law as provided for in sections 45 and 82 of the Law of Succession Act Cap 160 Laws of Kenya. The judge therefore rendered herself as follows:“The court finds that the auction carried out on 14/9/2011 on the 1st defendant’s instructions was in contravention of sections 45 and 82 of the Law of Succession Act, the chargor, Jane Wanjiru Kagunda having died on 27/7/2009 and the letters of administration over her estate not having been confirmed as at 14/9/2011 when the Suit Property was disposed of at the auction. The plaintiffs were appointed administrators of her estate vide letters of administration issued on 2/8/2011 which were confirmed on 31/7/2012. An order is issued cancelling the 3rd defendant’s title over LR No Ndumberi/Ndumberi/1234. The Plaintiff is awarded the costs of the suit to be borne by the 1st and 2nd Defendants jointly and severally”

15. The appellant was aggrieved and lodged this appeal, raising eight grounds of appeal which may be summarized as the learned judge erred both in law and fact when she: sanctioned cancellation of the appellant’s title to the suit property in the absence of evidence proving the 1st and 2nd respondents claim against them; failed to appreciate that the appellant was a bona fide purchaser for value without notice of any defect either in the title or the process vide which it got vested with title to the suit property; misdirected herself on the proper interpretation of sections 3, 45 and 82 of the Law of Succession Act, cap 160 Laws of Kenya and sections 77(3) and 77(4) of the Registered Land Act, Cap 300 of the Laws of Kenya (repealed) as read with section 162 of the Land Act, 2012; totally misapprehended the evidence adduced by the 1st and 2nd respondent which was directed at the 3rd and 4th respondents and erroneously misapplied it to rule in their favour against the appellant; and, lastly, that the decision arrived at by the trial court was in total contravention of articles 27(1) and 40 of the Constitution of Kenya, 2010.

16. The appeal came for plenary hearing on June 7, 2021. Learned counsel, Mr Njoroge Baiya appeared for the appellant, Edwin Simiyu Wabuge for the 1st and 2nd respondents, and Hiram Nyaberi for the 3rd respondent. There was no appearance for Mr Onindo for the 4th respondent equally served electronically with a hearing notice by the Deputy Registrar of this court on Wednesday, June 2, 2021 at 10. 30am. Neither did they file any written submissions either in compliance with the pretrial directions given by the Deputy Registrar of this Court on May 7, 2019 nor as directed in the hearing notice indicated above. There being no reason proffered for Mr. Ondino’s nonattendance, the court allowed learned counsel for the other parties present to prosecute the appeal. The appeal was canvassed virtually through written submissions and legal authorities fully adopted and relied upon by learned counsel for the respective parties present without oral highlighting.

17. Supporting the appeal, the appellant relies on the case of Patrick Kanyagia & another v Damaris Wangechi & 2 others [1995] eKLR and Marco Munuve Kieti v Official Receiver and Interim Liquidator Rural Urban Credit Finance & another [2010] eKLR both for the holding/proposition that the equity of redemption becomes extinct upon the chargee realizing the security, leaving a claim for damages as the only remedy available to the chargor, if aggrieved with the chargee’s manner of exercise of its statutory power of sale.

18. On the strength of the above holding/proposition, the appellant faults the trial judgefor the failure to: declare it a bona fide purchaser for value without notice of any defect either in the title or the process resulting in its acquisition of title to the suit property especially when the 1st and 2nd respondents both in their pleading and evidence did not attribute any fraud against it; appreciate that there was sufficient demonstration on the record that they purchased the suit property through a public auction and fully paid for it; properly appreciate that the 1st and 2nd respondents approbated the sale to the appellant with the acquiescence of the bank when they accepted payment to them of the balance of the proceeds of the sale and reprobated when they successfully sued for the recovery of the suit property, amounting to the Judge conferring on the 1st and 2nd respondents an unjust enrichment; properly appreciate that provision of sections 45 and 82 of the Law of Succession Act, cap 80, which heavily influenced the conclusions reached by the Judge in the impugned judgment, had no application to the circumstances that gave rise to this appeal as those provisions deal with free property of a deceased person.According to them the suit property was not such free property of the deceased having been charged to the bank and which charge had not been discharged as at the time the deceased passed on.

19. The appellant therefore urges this court to allow the appeal in its entirety with costs to them.

20. The bank in its support of the appellant’s appeal relies on the following authorities: Mbuthia v Jimbi Credit Finance Corporation & another [1988] eKLR; Hellen Wanjiru Kiragu & another (suing as the legal representatives of the estate of the late James Kiragu Kigotho (deceased) v James Ndung’u Miringu [2014] eKLR; and Ruhangi Properties Limited & 2 others v Standard Chartered Bank of Kenya Limited & 2 others [2000] eKLR all for holding/propositions, inter alia, that where no wrong in the exercise of the chargee’s statutory power of sale is attributed to a bona fide purchaser, the sale should not be vitiated, once property is encumbered as security, it ceases to be free property and lastly, wrongful exercise of a statutory power of sale by the chargee gives rise to a claim in damages in favour of the chargor and not nullification of the sale. The bank therefore faults the Judge for failing to find and hold that the appellant was a bona fide purchaser for value without notice of any defect either in the title or the process resulting in the appellant acquiring title to the suit property.

21. In opposition to the appellant’s appeal, the 1st and 2nd respondents rely on the decisions in the following cases: Daniel Otieno Migare v South Nyanza Sugar Company Ltd[2018] eKLR and Independent Electoral and Boundaries Commission & another v Stephen Mutinda Mule & 3 others[2014] eKLR both on the now crystallized principle of law that both parties and the court in any civil litigation are bound by pleadings on record; and submit that since the appellant did not plead in its defence that it is a bona fide purchaser for value without notice of any defect either in the title or the process that led to its acquisition of title to the suit property, this issue does not fall for consideration by this court on appeal; Jackton Nyanungo Ranguma v Independent Electoral and Boundaries Commission & 2 others [2017] eKLR and submit that since the entire process initiated by the bank to realize the security in the suit property was flawed any public auction founded on that process was also flawed, and therefore null and void and of no consequence; Muriuki Hassan v Bose Kinyua & 4 others[2014] eKLRand In Re Estate of John Gakunga Njoroge (deceased) [2015] eKLR in both of which the High Court vitiated a sale of a deceased person’s property by a party not vested with a grant of representation to that deceased person’s estate, and submit that the bank’s action of serving them with processes in the exercise of its statutory power of sale before they were appointed as administrators of the estate of the deceased rendered the entire process null and void and was rightly vitiated by the trial court; the case of John Spencer Harvey v Dunbar Assets PIC[2013] EWCA Civ 952 for the holding/proposition, inter alia, that any guarantee not endorsed by a guarantor is null and void and of no consequence with no binding effect on the guarantor, in support of their submission that the bank’s exercise of its statutory power of sale of the suit property having been founded on the impugned overdraft facilities dated July 23, 2007 and April 20, 2009 respectively, declared forgeries by PW2, was rightly vitiated by the trial court a position this court is urged to affirm; and lastly, the case of Marco Munuve Kieti v Official Receiver and Interim Liquidator Rural Urban Credit Finance & another(2010) eKLR in which the court sanctioned title acquired by a purchaser through a validly and procedurally conducted auction following a proper exercise of a statutory power of sale by a financier and submits that the circumstances prevailing in the above case law are distinguishable from those prevailing in the instant appeal as already highlighted above.

22. On alleged operation of the doctrine of estoppel they contend that their conduct complained of by the bank cannot per se be relied upon by the bank as basis for this court to sanction the process adopted by the bank to realize the security, as in doing so would be tantamount to the court sanctioning an illegality, especially, when it is on record that the firm of Kimani Charagu & Co Advocates acting on their behalf vide a letter dated September 13, 2011 warned the bank that the entire process leading to the then scheduled sale of the suit property by public auction on September 14, 2011 was flawed for reasons given in the said letter and would be challenged accordingly should the same be carried out as scheduled.

23. This is a first appeal. Our mandate as a first appellate court is as stipulated explicitly in rule 29(1) of the Court of Appeal Rules namely, to reappraise, re-evaluate and reanalyze the record consider it in light of the rival submissions before us and draw out own conclusions thereon and give reasons either way. Both the predecessor of this court and as reiterated and or crystallized by this court have delineated the parameters for the exercise of this mandate. We take it from Selle and another v Associated Motor Boat Company Limited & 2 others [1968] EA 123 in these terms:“An appeal to this court from a trial by the High Court is by way of retrial and the principles upon which this court acts in such an appeal are well settled. Briefly put they are that this court must reconsider the evidence, evaluate it itself and draw its own conclusion. Though it should always bear in mind that it has neither seen nor heard the witnesses and should make due allowance in this respect. In particular, this court is not bound necessarily to allow the trial Judge’s findings of fact if it appears either that he has clearly failed in some point to take account of particular circumstances or probability materially to estimate the evidence or if the impression based on the demeanor of the witness is inconsistent with the evidence in the case generally.”

24. I have considered the record assessed above, which I fully adopt for purposes of the determination of this appeal. The issues that fall for my determination are whether:1)The appellant pleaded that he was a bona fide purchaser of the suit property without notice of any defect either in the title or the process that led to its acquisition of title to the suit property.2)If the answer to issue number 1 is in the negative, whether the appellant stands nonsuited on his appeal.3)In light of the totality of the record, as assessed above, the appellant should be declared a bona fide purchaser for value without notice of any defect either in the title or the process that led to its acquisition of title to the suit property.4)Who shuold bear the costs of appeal.

25. In response to issue number 1, I have revisited the appellant’s defence on record and find that there is no specific pleading that the appellant was a bona fide purchaser of the suit property for value without notice of any defect either in the title or the process that led to its acquisition of title to the suit property through sale by public auction.

26. On issue number 2, my response thereto is that the law on the binding nature of pleadings both to the parties and the court in civil litigation has now been crystallized by case law. I take it from the case ofCaptain Harry Gandy v Caspar Air Charters Limited [1956] 23 EACA 139 wherein the predecessor of this court was explicit that:“Cases must be decided on the issues on the record; and if it is desired to raise other issues they must be placed on the record by amendment.”while inOdd Jobs v Mubia [1970] EA 476 the predecessor of the court added that:“A court may base its decision on an unpleaded issue if it appears from the cause followed at the trial that the issue has been left to the court for decision.”See also the position taken by this court in Ole Nganai v Arap Bor [1983] KLR 233 wherein the court was explicit that a court has no power to grant orders neither pleaded nor prayed for by the parties; and the case ofGalaxy Paints Co Ltd v Falcon Guards Ltd (2000) EA 885 wherein it was held, inter alia, that:“The issue of determination in a suit generally flowed from the pleadings and a trial court could only pronounce judgment on the issues arising from the pleadings or such issues as the parties framed for the court’s determination. Unless pleadings were amended, parties were confined to their pleadings. Gandy v Caspair (1956) EACA 139 and Fernandes v People Newspapers Ltd (1972) EA 63. ”

27. In light of the above crystalized principles of law, it is now trite that both parties and the court are bound by the pleadings proffered by the parties as basis for seeking a court’s intervention in any civil litigation. The only exception to the above general rule arises where there is sufficient demonstration on the record that parties by their conduct at the trial raised the issue(s) and left these to the trial court to determine.

28. I have revisited the record as laid before the trial court. My take thereon is that issue as to whether the appellant was a bona fide purchaser of the suit property for value without any notice of any defect either in the title and or the process vide which it acquired title to the suit property and caused it to be vested in its name was alive issue before the trial court notwithstanding want of a specific pleading to that effect in the appellant’s defence. That is why the 1st an 2nd respondents maintained throughout the entire proceedings before the trial court that the entire process vide which title was divested from the deceased and vested in the appellant was flawed and therefore unsanctionable by the trial court while in rebuttal, both the bank’s and appellant’s positions were that the entire process was legal, regular, lawful and therefore sanctionable.

29. In light of the above, I find and hold that there is sufficient demonstration on the record that parties by their conduct invited the trial court to interrogate and express itself on the issue as to whether the appellant was an innocent bona fide purchaser of the suit property for value without any notice of any defect either in the title or the process under which it acquired title to the suit property, even in the absence of any specific pleading in the appellant’s defence to that effect.

30. The above conclusion now leads me to consider issue number 3. The approach I take in resolving this issue is that taken by this court in the case of Munyu Maina v Hiram Gathiha Maina [2013] eKLR in which this court expressed itself, inter alia, as follows:“We state that when a registered proprietor’s root of title is under challenge, it is not sufficient to dangle the instrument of title as proof of ownership. It is this instrument of title that is in challenge and the registered proprietor must go beyond the instrument and prove the legality of how he acquired the title and show that the acquisition was legal, formal and free from any encumbrances including any and all interests which need not be noted on the register.”See also the case of Sammy Mwangangi & 10 others v Commissioner of Lands & 3 others [2018] eKLR in which this court sanctioned title in favour of a purchase for value without notice after a scrutiny of the supporting documents and found them in order.

31. The contracts executed by the bank, the deceased and the 4th respondent forming the substratum of this appeal were subject to sections 65, 69, 72, 74 and 77(3) and (4) of the Registered Land Actcap 300 Laws of Kenya (now repealed). Cumulatively, these anchor the chargor’s right of redemption and the bank’s right to realize the security in the event of any default on the part of the chargor to repay the indebtedness to the bank as chargee.

32. When similarly confronted this court in the case of Elijah Kipngeno Arap Bii v Samuel Mwehia Gitau & another [2009] eKLR, reviewed and took into consideration this court’s own decision in the case of Mbuthia v Jimbi Credit Finance Corporation &another [1988] KLR 1, as well as foreign jurisprudence on the rights, obligations and duties of a chargee in the exercise of its statutory power of sale and set out guiding principles with regard to the obligation of a mortgagee in the exercise of a statutory power of sale. These may be summarized as follows: a mortgagee has a duty to act in good faith, have regard to the interests of the mortgagor, obtain the best price for the property realized to pay off the debt for the benefit of both the mortgagor and the mortgagee, ensure that its power of sale is not exercised fraudulently, ensure that the mortgagors right of redemption is only lost pursuant to a valid sale. In sum, the mortgagee has a duty to ensure that the exercise of the statutory power of sale is not tainted by some kind of impropriety.

33. In the case of Kenya Commercial Bank Limited v Pamela Akinyi Ochieng Civil Appeal No 114 of 1991 and Obel Omuom v Kenya Commercial Bank Limited [1996] eKLR this court was explicit, inter alia, that compliance with the prerequisites with regard to service of the notice on to the “Chargor” is mandatory and noncompliance with this prerequisite renders the entire process undertaken by the chargee to realize the security invalid.

34. It is a common position on record that the bank did not move to exercise its statutory power of sale during the lifetime of the deceased. That is why documents informing the said process were served on the “estate of the deceased”, represented by the 1st and 2nd respondents before they were appointed administrators of the estate of the deceased on August 2, 2011.

35. I have construed section 74(3) & (4) of the Registered Land Act (now repealed) pursuant to which the bank exercised its statutory power of sale. I find nothing therein to suggest that the bank was not obligated to comply with the provisions of the Law of Succession Act cap 160 Laws of Kenya (LSA) in circumstances where the exercise of that power is undertaken after the death of the chargor. The thread of argument running cumulatively through the bank’s defence of the 1st and 2nd respondents claim against it is that the suit property having been charged to the bank and not discharged by the deceased as at the time of her death, the same was not free property subject to the Law of Succession Act Procedures.

36. By free property as defined in the LSA is meant the property of which the deceased person was legally and competent to freely dispose of the same during his/her lifetime and in respect of which his/her interest has not been terminated by his/her death. I have once more construed section 77(3) and (4) of the RLA and find nothing therein to suggest that the right of redemption became extinct upon the death of the deceased. The above being my view, I find and hold that the deceased’s right of redemption in the circumstances of this appeal did not become extinct upon the death of the deceased. It therefore devolved to the personal representatives. That is why the LSA does not donate power to the “estate of a deceased person” to deal with property forming that deceased person’s estate, and instead donates that power to an administrator with a will or a personal representative to the intestate estate of a deceased person to deal with a deceased person’s property after the death of such a deceased person.

37. Section 45(1) of the Law of Succession Act is explicit that dealings with a deceased person’s property is only permissible to the extend provided for by the provisions of the said Act. Among these is provision that only persons holding a grant of representation to a deceased person’s estate have mandate to transact any business with regard to such property and to the extend provided for in section 82 of the Act on powers donated to a personal representative.

38. I am alive to the fact that the bank has however taken refuge in the invocation and application of the doctrine of estoppel arguing that since the 1st and 2nd respondents held themselves out to the bank as duly authorized administrators of the estate of the deceased and obtained a waiver of interest on the amount outstanding to the tune of Kshs 2,000,000. 00 and, secondly, having the auction then scheduled for July 14, 2011 rescheduled, they are estopped from challenging the manner in which the bank exercised its statutory power of sale of the suit property.

39. In the case of 748 Air Services Limited v Theuri Munyi [2017] eKLR this court when similarly confronted, reviewed both local and foreign jurisprudence on instances in which the doctrine of estoppel applies and set out guidelines which I find prudent to distill, inter alia, as follows: estoppel usually goes hand in hand with waiver. The commonest of these are estoppel by conduct and estoppel by election or waiver; waiver is intentionally relinquishing of a right or privilege; the primary meaning of the word waiver in legal parlance is the abandonment of a right in such a way that the other party is entitled to plead the abandonment by way of confession and avoidance if the right is thereafter asserted. It is either express or implied from the conduct.

40. In the case of Sita Steel Rolling Mills Ltd v Jubilee Insurance Company Ltd [2007]eKLR, this court stated thus: “A waiver may arise where a person has pursued such a course of conduct as to evince an intention to waive his right or where his conduct is inconsistent with any other intention than to waive it. It may be inferred from conduct or acts putting one off one's guard and leading one to believe that the other has waived his right.” In Seascapes Limited v Development Finance Company of Kenya Limited[2009] eKLR, this court was explicit that:“The doctrine of waiver operates to deny a party his right on the basis that he had accepted to forego the same right having known of its existence. The doctrine of estoppel operates as a principle of law which precludes a person from asserting something contrary to what was implied by a previous action or statement of that person or by a previous pertinent judicial determination.” See also Serah Njeri Mwobi v John Kimani Njoroge [2013] eKLR in which this court expressed itself thus:“The doctrine of waiver operates to deny a party his right on the basis that he had accepted to forego the same rights having known of their existence.The doctrine of estoppel operates as a principle of law which precludes a person from asserting something contrary to what is implied by a previous action or statement of that person. ....”

41. I have applied the above threshold to the bank’s assertion that the doctrine of estoppel operates in its favour to defeat the 1st and 2nd respondents claim against it. It is my position that in the absence of the bank demonstrating that the chargor’s right of redemption became extinct upon her death, nor existence of any other provision of law other than the LSAProcedures under which the bank could have moved to exercise its statutory power of sale after the death of the deceased who was the chargor coupled with lack of explanation on the part of the bank as to why it directed Leakeys Auctioneers to serve the “estate of the deceased” leaves no doubt in my mind that in this appeal the bank was obligated in law to invoke the process for the exercise of its statutory power of sale within the remit of the procedures provided for in the LSA.

42. Secondly, I find nothing in the guiding principles distilled above on invocation and application of both the doctrine of estoppel and waiver to suggest that these override clear provisions of law. It therefore mattered not that the 1st and 2nd respondents held themselves out to the bank as duly authorized administrators with mandate to act on behalf of the estate of the deceased when they were not. That conduct on their part cannot be sanctioned to oust the operation of clear provisions of law with a view to sanitizing the flawed process vitiated by the trial judge.

43. It is against the totality of the above assessment and reasoning, that I now proceed to determine whether the appellant’s plea that it is an innocent bona fide purchaser of the suit property for value without notice of any defect either in the title or the process that resulted in the title being vested in its name is sustainable.

44. Black’s Law Dictionary, 8th Edition defines a bona fide purchaser as“one who buys something for value without notice of another claim to the property and without actual or constructive notice of any defects in or infirmities, claim or equities against the seller’s title; one who has in good faith paid valuable consideration for property without notice of prior adverse claims"Elements/ingredients for qualification of a party as a bona fide purchaser, and which I fully adopt are those distilled in the case of Lawrence P Mukiri v Attorney General & 4 others [2013 ]eKLR, namely, proof that the claimant:a)He holds a certificate of Title;b)He purchased the Property in good faith;c)He had no knowledge of the fraud;d)The vendors had apparent valid title;e)He purchased without notice of any fraud;f)He was not party to any fraud.

45. On the role of the court when confronted with an appeal of this nature, the position I take and which I fully adopt is that taken by the court in the case of Wambui v Mwangi & 3 others(Civil Appeal 465 of 2019) [2021] KECA 144 (KLR) (Civ) (19 November 2021) (Judgment). In it, the court reviewed numerous case law on the subject and variously distilled guiding principles therefrom. Those I find relevant in the determination of this appeal are the following:i)No court ought to enforce an illegal contract or allow itself to be made the instrument of enforcing the obligations alleged to arise out of a contract or transaction which is illegal, if the illegality is duly brought to the notice of the court.ii)It is trite law that where an act is a nullity it is void and every proceeding founded on it is also in law a nullity.iii)Every act premised on a nullity cannot accrue legitimacy or legality.iv)Sanctity of title was never intended or understood to be a vehicle for fraud and illegalities or an avenue for unjust enrichment at another person’s expense.v)A court of law cannot protect title to land which has been obtained illegally or fraudulently merely because a person is entered in the register as proprietor.

46. Starting with fraud, I adopt the definition of fraud as set out in Black’s Law Dictionary, 9th Edition at page 131 as:“a knowing misrepresentation of the truth or concealment of a material fact to induce another to act on to his or her detriment.”While for the threshold for proof of fraud, I adopt the position taken by the predecessor of this court in the case of Railal Gordhanbhai Patel v Lalji Makanji[1957] EA 314 for the holding/propositions, inter alia, that proof of fraud is slightly higher than a balance of probabilities but slightly lower than proof beyond reasonable doubt.

47. It is correctly submitted by the appellant that no fraud was attributed to it by the 1st and 2nd respondents in their plaint hence its assertion that the fraud attributed to the bank and the 4th respondent should not have been applied by the trial Judge to vitiate its title to the suit property.

48. On proof of fraud, starting with that attributed to the bank, I find these were proved to the required threshold for reasons that the bank converted the first and further charge into overdraft facilities in favour of the 4th respondent without the knowledge, participation, consent and or approval of the deceased; failed to tender evidence through its staff involved in the impugned transactions or expert evidence to controvert the 1st and 2nd respondents evidence that the impugned transactions were not only forgeries but also a fraud on the estate of the deceased; knowingly issuing a demand, and notification of sale notice based on an amount forming the substratum of the demand notices that had been issued to the 4th respondent requiring him to pay up the amount arising from the overdraft facilities purporting to be the amount due and owing to the bank by the chargor arising from the first and further charge; purporting to circumvent the clear provision of law requiring it to issue such processes upon the chargor by erroneously issuing its demand and notification of sale notices on the “estate of the deceased” (emphasis added) well knowing that it is not the “estate of the deceased” which was the chargor and was therefore incapable in law of being served with those processes; carefully couching and excluding from the contents of the demand notice and notification of sale to the estate of the deceased words to the effect that the amount reflected in both documents as the amount owing, due and payable to the bank by the chargor were in fact amounts that formed demand to the 4th respondent to meet his obligation to the bank under the overdraft facilities; factoring the amounts forming the overdraft facilities as basis for its move to realize the security in the suit property knowing that those overdraft facilities were never registered against the title to the suit property, and, lastly, carefully excluding the documentation on the overdraft facilities from the documents forwarded to the appellant ‘s advocates to facilitate the transfer of the suit property to the appellant so as to create the false impression on the record that in fact the power of sale was exercised based on the charge and further charge when in fact the said power of sale was exercised on the basis of the undisclosed overdraft facilities granted to the 4th respondent without the sanctioning of the deceased.

49. Turning to those attributed to the 4th respondent, I also find these were proved to the required threshold through his admission that the deceased was not involved in the conversion of the charge and further charge into overdraft facilities by the bank in his favour allegedly because in his opinion these were mere extensions. In my view, this admission on the part of the 4th respondent was sufficient demonstration of collusion between him and the bank through its staff to convert the charge and further charge into overdraft facilities without the consent, knowledge and participation of the deceased to the detriment of the deceased’s interest in the suit property. Lastly, failing to pay off the overdraft facilities accorded to him by the bank and or even demonstration of his willingness to do so. His conduct of being indifferent to the plight of the beneficiaries of the estate of the deceased in the wake of the threat of dispossession of the suit property through the flawed process initiated by the bank in its purported move to realize the security in the suit property is deplorable and therefore deserves not only condemnation in the strongest possible terms but should also neither be countenanced nor condoned by a court of law.

50. On illegalities and irregularities, I find these also proved to the required threshold based on the fact that the bank well knowing that in law it could only invoke its statutory power of sale upon service of a demand and notification of sale on a chargor, purported to comply with that prerequisite by purporting to serve the said processes on the estate of the deceased a process not provided for in law either under the RLA or LSA as none was pointed out to the court by the bank.

51. Want of compliance with the Law of Succession Act provisions by the bank in the exercise of its statutory power of sale rendered the entire process an illegality and therefore null and void. The position in law with regard to nullities and or illegalities and which I adopt is as was crystallized by the locus classicus decision of the privy council in the case of Macfoy v United Africa Co Limited [1961] 2 All ER for the holding, inter alia, that once an act is null and void, it amounts to nothing. No right can be founded on it.

52. In light of the above crystallized position, since the appellant’s title has its roots in the bank’s flawed process in the exercise of its statutory power of sale on the basis of which the appellant got title to the suit property, the said title is tainted with fraud, nullity, irregularly and illegality. In terms of the principles distilled in the case of Edward Ndung’u Wambui [supra] which I have adopted and applied herein, the appellant’s plea of an innocent purchaser for value without notice to either title or the process resulting in it being vested with title to the suit property is unsanctionable.

53. On alleged possible unfair enrichment of the 1st and 2nd respondents by reason of them allegedly receiving the balance of the proceeds of sell of the suit property as well as cancellation of title vested in the appellant in their favour, I find this assertion on the part of the appellant not proved. As already highlighted above, indeed the 1st and 2nd respondents instructed an advocate to demand those proceeds on their behalf but as mentioned above, the record is silent as to whether the balance of the said proceeds were ever paid out to the 1st and 2nd respondents and if so, how much and when the same was paid out. I therefore, find and hold that the plea of unfair and unjust enrichment levelled against the 1st and 2nd respondents by the appellants is not founded on the facts on the record.

54. The upshot of the totality of the above assessment and reasoning, and since Okwengu, JA is in agreement, the final orders of the court are that the appeal herein has no merit. It is accordingly dismissed with costs to the 1st and 2nd respondents. The trial court’s decision is accordingly affirmed.

Judgment of Hannah Okwengu, JA. [1]The facts relating to this case and the applicable law have been elaborately set out by my sister Judges Nambuye & Karanja, JJA. I do not therefore find it necessary to repeat the same, except to briefly highlight the facts so as to put the issues into proper perspective.

[2]The litigation subject of the appeal now before us concerns property known as LR No Ndumberi/Ndumberi 1234 (suit property) which was owned by Jane Wanjiru Njenga (deceased). The material facts are substantially not in dispute. The deceased had charged the suit property to the 3rd respondent, Standard Chartered Bank (the Bank), as security for financial facility advanced to the 4th respondent, Joseph Wachira Njuguna (Njuguna) who defaulted in the repayment. The deceased died on 27th July 2009. On 29th December 2009, the bank issued a demand letter to Njuguna for payment of the outstanding amount. Njuguna did not make any payment.

[3]Consequently, on July 22, 2010 the Bank issued statutory notices of intended sale of the suit property to 1st and 2nd respondents, who are beneficiaries of the deceased’s estate. By this time, no grant had been issued to the 1st and 2nd respondents. The 1st and 2nd respondents, however, engaged the Bank in negotiations and the Bank waived Kshs 2 million out of the outstanding amount and postponed the sale to enable the 1st and 2nd respondents to repay the debt. However, the 1st and 2nd respondents failed to pay the outstanding amount.

[4]In the meantime, the 1st and 2nd respondents who had applied for letters of administration, were issued with a grant on August 2, 2011. The Bank instructed an auctioneer to sell the suit property. The auctioneer served the 1st and 2nd respondent with a 45 days’ redemption notice on May 6, 2011, and on 14th September, 2011 the Auctioneer sold the suit property and declared the appellant the highest bidder for the suit property. Subsequently the appellant paid the full purchase price, certificate of sale was issued to it, a transfer registered, and title issued in its favour. The grant issued to the 1st and 2nd respondents was confirmed on July 31, 2012.

[5]The 1st and 2nd respondents filed a suit in the Environment and Land Court (ELC), in their capacity as administrators of the estate of the deceased seeking an order for cancellation of the sale of the suit property to the appellant, as well as general damages. In a judgment subject of the appeal before us, the learned Judge of the ELC ruled in favour of the 1st and 2nd respondents and cancelled the appellant’s title. The appellant being aggrieved by the judgment has faulted the judgment on 8 grounds.

[6]I have carefully considered the record of appeal and the rival submissions made by the respective parties, which submissions have been ably set out by each of my sister judges in their respective judgments. In my view, the appeal turns on four main issues. First, whether the Bank had a statutory power of sale in regard to the suit property. If so, whether the statutory power of sale was properly exercised, if so, whether the appellant was an innocent purchaser for value without notice, and finally whether the learned Judge erred in cancelling the sale of the suit property to the appellant. Before delving into these issues, I wish to address a preliminary issue concerning the pleadings.

[7]The respondents pleaded in their plaint at paragraph 18, 19, 22 and 23 that the purported sale of the suit property to the appellant in exercise of the Bank’s statutory power of sale, was fraudulent and not bona fide because no sale actually took place; that the purported sale price was an undervalue, and the purported sale undertaken to defraud the estate of the deceased. Although the appellant did not specifically plead in his defence to the 1st and 2nd respondents’ claim, that it was an innocent purchaser for value without notice, it denied the 1st and 2nd respondents’ claim. Therefore, the 1st and 2nd respondents had the burden of proving their allegations including the fact that the sale was fraudulent and not bona fide.

[8]In accordance with the holding in Odd Jobs v Mubia [1970] EA 476, the issue whether the appellant was an innocent purchaser for value without notice, was an issue that was germane to the legality of the substantive sale of the suit property, and therefore an issue that must be considered to have been left to the court to determine in addressing the process and legality of the statutory sale.

[9]As already stated, it is common ground that the deceased charged her property to the Bank. The dispute concerns the exercise of the Bank’s statutory power of sale. That power of sale, having been exercised on September 14, 2011, the provisions of the Land Act (No 6 of 2012) that currently applies to the exercise of statutory power of sale having come into effect on May 2, 2012 after the impugned sale, could not act retrospectively. I therefore turn to the provisions of the Registered Land Act(cap 300) (now repealed) (RLA), that was the law applicable as at September 14, 2011.

[10]Section 74(1) of RLA provided for the remedies of a chargee as follows:“(1)If default is made in payment of the principal sum or of any interest or any other periodical payment or of any part thereof, or in the performance or observance of any agreement expressed or implied in any charge, and continues for one month, the chargee may serve on the chargor notice in writing to pay the money owing or to perform and observe the agreement, as the case may be.(2)If the chargor does not comply, within three months of the date of service, with a notice served on him under sub-section (1), the chargee may -(a)appoint a receiver of the income of the charged property; or(b)sell the charged property:Provided that a chargee who has appointed a receiver may not exercise the power of sale unless the chargor fails to comply, within three months of the date of service, with a further notice served on him under that subsection.”(Emphasis added)

[11]Section 77(1), (3) & (4) of the RLAprovided as follows on the power of chargee to sell:“(1)A chargee exercising his power of sale shall act in good faith and have regard to the interests of the chargor, and may sell or concur with any person in selling the charged land, lease or charge, or any part thereof, together or in lots, by public auction through a licensed auctioneer for a sum payable in one amount or by instalments, subject to such reserve price and conditions of sale as the chargee thinks fit.(3)A transfer by a chargee in exercise of his power of sale shall be made in the prescribed form, and the Registrar may accept it as sufficient evidence that the power has been duly exercised, and any person suffering damage by an irregular exercise of the power shall have his remedy in damages only against the person exercising the power.(4)Upon registration of the transfer, the interest of the chargor as described therein shall pass to and vest in the transferee freed and discharged from all liability on account of the charge, or on account of any other encumbrance to which the charge has priority (other than a lease, easement or profit to which the chargee has consented in writing).”__ (Emphasis added)

[12]Section 74 gives a chargee remedies which includes the right to sell the charged property. However, before that right can be exercised, the chargee is required to serve a notice on the Chargor in writing, requiring him/her to pay the money owed or perform the agreement. That notice must be served at least three months before the sale, and the sale can only take place if no payment is made. Section 77 of RLA gives the chargee the power to sell the charged property at a public auction through a licensed auctioneer, after the service of appropriate notices.

[13]It is apparent that the Bank exercised its statutory power of sale after the death of the deceased who died on July 27, 2009. The Bank maintained it served the statutory notice on 1st and 2nd respondents on July 22, 2010 before it exercised its statutory power of sale. While the two do not deny service of the statutory notice on them, they contend that they had no authority to receive service on behalf of the estate of the deceased.

[14]George Njoroge Muiruri (Muiruri), an auctioneer t/a as Leakey Auctioneers swore an affidavit in which he deposed that he served the 1st and 2nd respondents on May 6, 2011 with the redemption notice before he carried out the sale. In his affidavit of service Muiruri explained that when he went to serve the notice at the home of the deceased, he met a young man who introduced himself as the son of the deceased. The young man called his brother Daniel Muiruri Njenga, but when Muiruri served the two, they declined to sign the notice, and as a precaution Muiruri posted the 45 days’ redemption notice and notification of sale by registered mail, to the borrower and the estate of the registered owner. He does not give the date when he posted the notice of the address used.

[15]It was after that purported service that 1st and 2nd respondents wrote a letter in which they sought indulgence for the debt arising from the Charge to be reduced. Copies of the petition for letters of administration that are on record show that the 1st and 2nd respondents had filed the petition for letters of administration for the estate of the deceased on May 31, 2010. As at May 6, 2011 when they were served by the Auctioneer, they had not obtained any grant as the grant was issued to them on August 2, 2011. The purported service of the statutory notice and the redemption notice upon the 1st and 2nd respondents on July 22, 2010 and May 6, 2011 respectively, was thus not proper service on the estate of the deceased, as the 1st and 2nd respondents had no authority to deal with the estate of the deceased before August 2, 2011 when they were issued with a grant.

[16]It was argued that the 1st and 2nd respondents having entered into discussions with the Bank, they presented themselves as competent to deal with the estate, and should therefore be estopped from denying their authority to receive the notice. It must be noted that the 1st and 2nd respondents as administrators of the estate of the deceased, do not act in their own capacity nor do they represent their own interest alone. They act on behalf of all the beneficiaries of the estate and what they do in their personal capacity must be distinguished from what they do in their capacity as administrators.

[17]In regard to unjust enrichment, the Bank submitted that at the request of the 1st and 2nd respondents, it forwarded the balance of the purchase price for the suit property after offsetting the outstanding debt to these respondents, and that by the said respondents keeping the money and seeking cancellation of the transfer of the suit property, it would amount to unjust enrichment. I have carefully perused the record of appeal and do find that the issue of unjust enrichment was not pleaded nor canvassed in the trial court, nor was it raised in the defence of the Bank or Njuguna or the appellant. Secondly, the Bank did not plead nor adduce any evidence that it paid the balance of the purchase price after offsetting the debt, to the 1st and 2nd respondents, nor was there any evidence regarding the amount of surplus after the debt was paid, and to whom payment was made or any acknowledgment for such payment. Hence, I reject the allegations of unjust enrichment on the part of the 1st and 2nd respondents.

[18]The grant of confirmation indicates that apart from the 1st and 2nd respondents, there were three other beneficiaries, one of whom was a minor. Therefore, apart from the fact that the 1st and 2nd respondents had no authority to negotiate on behalf of the deceased’s estate before August 2, 2011 when they were issued with the grant, any compromise that the 1st and 2nd respondents entered into before they were issued with the grant was made in their own personal capacity and interest as beneficiary and not made on behalf of the estate of the deceased or the other beneficiaries. Any estoppel or waiver that arises from the conduct of the 1st and 2nd respondents in engaging with the Bank before they were issued with the grant, is limited to the interests of the two in the estate, and not the interest of all the beneficiaries.

[19]Section 82(b) of the Law of Succession Act (LSA) states:“Personal representatives shall, subject only to any limitation imposed by their grant, have the following powers –(a)to enforce, by suit or otherwise, all causes of action which, by virtue of any law, survive the deceased or arising out of his death, for his personal representative;(b)to sell or otherwise turn to account, so far as seems necessary or desirable in the execution of their duties, all or any part of the assets vested in them, as they think best:Provided that-(i)any purchase by them of any such assets shall be voidable at the instance of any other person interested in the asset so purchased; and ai. No immovable property shall be sold before confirmation of the grant.(c)to assent, at any time after confirmation of the grant, to the vesting of a specific legacy in the legatee thereof;(d)….” (Emphasis added)

[20]A plain reading of section 82 of LSA shows that it refers to powers of the personal representative of the deceased’s estate to sell the deceased’s property, and that power is only available to the personal representative after the confirmation of the grant. This limitation does not apply in a forced sale by a chargee exercising a statutory power of sale in regard to property charged by the deceased before death. The chargee only has to comply with the provisions of the law in regard to the exercise of the statutory power of sale.

[21]As regards section 66 of the LSA, as a chargee, the Bank was not an ordinary creditor but occupied a privileged position as it had priority over the suit property that the deceased had charged to it. However, this privileged position did not deny the deceased or the deceased’s estate the right to pay off the debt and redeem the suit property. The question whether the suit property was the deceased’s free property, is answered in reference to section 3 of the LSA that defines free property in relation to a deceased person to mean:“The property of which that person was legally competent freely to dispose during his lifetime and in respect of which his interest has not been terminated by his death”.

[22]The deceased having charged the suit property to the Bank, she was competent to dispose it during her lifetime subject to the Bank’s consent, or her paying off the debt. Although her right of disposal was encumbered by the charge, her death did not automatically terminate her interest in the suit property. The property remained part of her estate subject to the debt. It was therefore free property that could be inherited by the beneficiaries of the estate of the deceased subject to the encumbrance.

[23]As chargee, the Bank had the option under section 66 of LSA to apply for letters of administration for the estate of the deceased to enable it exercise its statutory power of sale. Nevertheless, in light of the Bank’s interest in the suit property, and the rights of the deceased’s beneficiaries, the Bank could only exercise this option by applying to have a person or persons entitled to a grant of letters of administration for the estate of the deceased chargor appointed as such by the court. This would have enabled the Bank to serve the estate of the deceased with the necessary notices through the appointed administrators, to give an opportunity for the estate to pay the debt failing which the Bank would be able to pursue its statutory right of sale, the administrators stepping into the shoes of the deceased chargor. The Bank did not follow this avenue and the estate of the deceased was not given an opportunity to redeem the suit property before the sale. To that extent the Bank’s statutory power of sale had not accrued.

[24]Of greater concern is the allegation at paragraph 10 of the plaint that the terms of the charge were fraudulently altered without the knowledge or consent of the chargor, so that the charge became an overdraft facility and the Bank advanced further monies to Njuguna. In Vijay Morjaria v Nansingh Madhusingh Darbar & another [2000] eKLR, Tunoi JA stated the law on fraud as follows:“It is well established that fraud must be specifically pleaded and that particulars of the fraud alleged must be stated on the face of the pleading. The acts alleged to be fraudulent must of course be set out, and then it should be stated that these acts were done fraudulently. It is also settled law that fraudulent conduct must be distinctly alleged and as distinctly proved, and it is not allowable to leave fraud to be inferred from the facts. See Davy v Garrett (1878) 7 Ch D 473 at 489. ”

[25]The particulars of fraud pleaded by the 1st and 2nd respondents at paragraph 10 of the plaint, included the Bank having advanced further monies to Njuguna and illegally extending the further advances to the Charge and Further Charge; the Bank using the suit property as security for the additional funds without the deceased’s knowledge or consent to the additional funding; the Bank and Njuguna forging the deceased’s signature in an effort to show that the deceased had guaranteed the further advances to Njuguna; the Bank having failed to render to the deceased or the 1st and 2nd respondents a true and proper account of the loan; and the Bank having failed to serve any statutory notice on the deceased or her personal representative. The issue is, were these particulars proved?

[26]Section 71 of RLA provided as follows in relation to variation of a Charge:“The amount secured, the method of repayment, the rate of interest or the term of the charge may be varied by the registration of an instrument of variation executed by the parties to the charge, but no such variation shall affect the rights of the proprietor of any subsequent charge, unless he has consented to the variation in writing on the instrument of variation.”

[27]The Bank contended that the deceased signed the necessary documents consenting to the Charge being converted into an overdraft facility, and that her signature was witnessed by a Bank official. Nevertheless, this Bank official was not identified nor was he/she called to testify. I have perused the record of appeal and do note that the Charge, Further Charge and the overdraft facility documents reveal that the Charge dated August 19, 2005 and Further Charge dated July 7, 2006, were both signed by the deceased in the presence of an identified advocate in compliance with section 79 and 74 of RLA. Both Charges are also registered in the encumbrance section of the title to the suit property.

[28]In contradistinction, the overdraft facility documents dated July 23, 2007 and April 20, 2009, are purported to have been signed by the deceased before a Bank official and not an advocate. The Bank official is not identified, there is also no indication of compliance with section 74 and 79 of the RLA. In addition, there is no indication of registration of the facility in the encumbrance section of the title to the suit property.

[29]The above anomalies, coupled with the uncontroverted evidence of Martin Esakina Papa (the document examiner), and his report that the document for the overdraft facility was not signed by the same hand as the deceased’s standard writings, and the fact that the Bank official whom the Bank claimed witnessed the deceased sign the document remained nameless and faceless, the inescapable conclusion is that the deceased did not sign the overdraft facility documents and, therefore, did not consent to the Charge and Further Charge being converted to an overdraft banking facility. This shows that the variation was done contrary to section 71 of the RLA. It also provides clear evidence of the fraud perpetrated upon the deceased by the Bank and Njuguna. Thus, the 1st and 2nd respondents established the particulars they pleaded and thereby discharged the burden of proving the fraud that they alleged against the Bank and Njuguna.

[30]Under section 77(1) of RLA the Bank as Chargee was required to act in good faith in exercising its statutory power of sale and to have regard to the interests of the deceased as Chargor. The Bank did not discharge this obligation, but was complicit in defrauding the deceased’s estate, as it maintained that its officer witnessed the deceased’s signature when this was not so.

[31]The fraud rendered void the purported exercise of the Bank’s statutory power of sale for three reasons. First, there was no evidence of what was owing as at the time the Charge was converted into an overdraft facility. Secondly, by making further advances to Njuguna on new terms without the deceased’s knowledge or consent, the Bank waived its rights on the Charge and Further Charge, thereby releasing the deceased from her obligation under the Charge and Further Charge. Thirdly, the security that the deceased had offered was not a continuing security but was specifically pegged on the Charge and Further Charge that she had signed. The Bank had no statutory power of sale in regard to the additional advances as no Further, Further Charge was executed by the deceased, or registered against the title to the suit property, nor was the deceased’s estate served with any statutory notices.

[32]The Bank could not therefore purport to exercise its statutory power of sale in regard to the original Charge and Further Charge as the same was no longer available to it. Nor could the Bank anchor its statutory power of sale on the subsequent overdraft facility as the deceased was not party to it, nor was the overdraft facility secured by the title to the suit property. In a nutshell the Bank’s statutory power of sale did not arise as there was no evidence of any default arising from the original Charge or Further Charge signed by the deceased, and the purported exercise of the power of sale was also irregular as no statutory notice was served on the deceased’s estate. I come to the conclusion that the purported exercise of the statutory power of sale by the Bank is void and the Bank is liable to the deceased’s estate in selling the suit property.

[33]Coming to the appellant who had purchased the suit property at a public auction carried out by the auctioneer on the instructions of the Bank, although the 1st and 2nd respondents alleged that the no auction took place and that the suit property was sold to the appellant at an undervalue, the auctioneer stated under oath that he carried out an auction sale on September 14, 2011 during which the appellant was the highest bidder at Kshs 15,300,000. There is no reason to doubt the evidence of the Auctioneer which is consistent with the evidence of the appellant.

[34]There was evidence that Joe Musyoki Consultants carried out a valuation of the suit property before the sale, and prepared a report dated February 3, 2011 placing the open market value for the suit property at Kshs. 18,500. 000 and the forced value at Kshs 12, 950,000. The 1st and 2nd respondents produced a valuation done on October 28, 2010 by Tysons Limited in which the open market value is placed at Kshs. 20,000,000 and the forced sale value at Kshs 17,000,000.

[35]Although this valuation is purported to have been done in October 2010, there is no specific reference to the valuation before the sale of the suit property. In my view, the bid of Kshs 15,300,000 by the appellant was reasonable, given the valuation by Joe Musyoki Consultants. I reject the allegation of sale at an undervalue as the auction sale, being a forced sale, the highest bid is dependent on the response to the auction, and therefore not predictable.

[36]The appellant having paid the full purchase price, the suit property was transferred to it, and a title issued in its name. There is no evidence that the appellant was complicit in or had any knowledge of any fraudulent dealings involving the sale of the suit property or irregularities concerning the exercise of the statutory power of sale by the Bank. The appellant was therefore an innocent purchaser for value without notice. The question is, what is the impact of the wrongful exercise of the Bank’s statutory power of sale on the purchase of the suit property by the appellant?

[37]The power of the court to order cancellation of a transaction that has been procured by fraud or mistake is circumscribed by section 143 of RLA as follows:“143. (1)Subject to subsection (2), the court may order rectification of the register by directing that any registration be cancelled or amended where it is satisfied that any registration (other than a first registration) has been obtained, made or omitted by fraud or mistake.(2)The register shall not be rectified so as to affect the title of a proprietor who is in possession and acquired the land, lease or charge for valuable consideration, unless such proprietor had knowledge of the omission, fraud or mistake in consequence of which the rectification is sought, or caused such omission, fraud or mistake.”

[38]A plain reading of section 143 of RLA reveals that the court can only order cancellation of registration of a title where fraud is established in the case of a proprietor who is in possession and acquired the property for valuable consideration, where it is established that the proprietor was either complicit in the fraud or had knowledge of the fraud, and was therefore not a bona fide purchaser for value without notice. In addition, section 77(3) of the RLA (reproduced at paragraph 10 of this judgment), provided that once the sale is registered, a person who is aggrieved by an irregular exercise of a chargor’s statutory power of sale is only entitled to damages against the person exercising the power.

[39]In the plaint the 1st and 2nd respondents sought general damages in addition to cancellation of the title issued in favour of the appellant. Was the prayer for cancellation of the appellant’s title to the suit property available to the 1st and 2nd respondents?

[40]In Nyangilo Ochieng & another v Fanuel B Ochieng & 2 others [1996] eKLR, this court considering the position of an innocent purchaser in an auction sale which was void stated thus:“Having held that the auction sale was void we must consider the consequences. Miss Awino argued that section 77(3) of the Registered Land Act gives her client a good title. That sub-section reads:(3)A transfer by a chargee in the exercise of his power of sale shall be made in the prescribed form, and the Registrar may accept it as sufficient evidence that the power has been duly exercised and any person suffering damage by an irregular exercise of the power shall have his remedy in damages only against the person exercising such power".…….In our view, a sale which is void does not entitle the purchaser at such sale to obtain proprietorship or title to the land so sold. It is therefore clear that the second respondent did not acquire proper titles to the suit properties. Her remedy is against the bank primarily to obtain a refund of the consideration paid.’’

[41]I reiterate the position of the court as above stated and take the view that there is a distinction between an auction sale which is rendered irregular during the sale, and a sale which is void because the statutory power of sale either had not accrued or is vitiated by fraud. While an innocent purchaser in an irregular sale may be saved by section 77(3) of the RLA, that section cannot help an innocent purchaser in the case of a void sale, particularly in a situation such as this where the Bank is complicit in the fraud and has unlawfully sold the suit property.

[42]Despite the court having the obligation to protect an innocent purchaser for value at an auction sale, Bank financing is critical to the economy of this country and fraudulent realization of security by a large Bank such as the 3rd respondent, cannot be allowed to take root by the court protecting an innocent purchaser who is the ultimate beneficiary in such a transaction. In the circumstances of this case, it would be inimical to justice and public interest to allow a situation where a Bank conspires to deliberately sell property belonging to a dead person, when the property was not charged as security for the outstanding debt, and the deceased’s estate has not even been served with any statutory notice. That would amount to “robbery” of a deceased person carried out in broad daylight.

[43]I find further support in the fact that unlike the Land Act, where by virtue of section 99(3), an innocent purchaser for value, is protected even where the charged property is sold when there has been no default by the Chargor, or when no statutory notice has been served on the Chargor, or the sale ‘is in some way, unnecessary, improper or irregular’ the RLA does not have a similar provision. Section 77(3) of RLA does not provide a blanket protection but only protects in the case of an irregular auction sale, not a sale that is void and illegal.

[44]For these reasons, I come to the conclusion that the sale of the suit property to the appellant is void and the appellant’s remedy lies in damages against the Bank and not the estate of the deceased. Consequently, I would uphold the judgment of the trial court and concur with my sister Nambuye, JA that this appeal is for dismissal. The orders shall therefore be as proposed by Nambuye, JA.

Judgment of W Karanja JA. 1. The 1st and 2nd respondents filed ELC No 328 of 2013 before the Environment and Land Court (ELC) at Nairobi in their capacity as the legal representatives of the estate of their mother, the late Jane Wanjiru Njenga, (hereafter the deceased) who died on July 27, 2009. The two were appointed administrators of her estate vide a grant of letters of administration issued on 2nd August, 2011 and confirmed on July 31, 2012.

2. The main asset left by the deceased was LR No Ndumberi/ Ndumberi/1234 (“the suit property”) which the deceased had charged to Standard Chartered Bank of Kenya Ltd (3rd respondent) on 19th August, 2005 to secure a financial facility to the tune of Kshs 1. 5 million together with interest advanced to the 4th respondent by the Bank. The deceased is said to have subsequently executed a further charge on July 7, 2006 for Kshs 2. 52 million together with interest using the same property as security. The said facility had not been settled in full as at the time the deceased passed on, and subsequently, the Bank sought to realise the security for non-payment.

3. Although the 1st and 2nd respondents contest service of the statutory notice on them, it is not disputed that the issue of the outstanding loan and consequent threat to sell the property came to their attention prompting the two to engage the Bank in some negotiations in a bid to redeem the suit property. The negotiations failed and ultimately, the Bank purported to exercise its statutory power of sale and sold the suit land to Marteve Guest House (the appellant) on September 14, 2011 for Kshs. 15. 3 million in a contested public auction.

4. The 1st and 2nd respondents challenged the Bank’s action through the aforementioned suit claiming that the Bank had fraudulently increased the limit of the financial facilities advanced to the 4th respondent bringing it to Kshs 5. 6 million on July 23, 2007 and April 20, 2009 as set out in the particulars of fraud in the plaint. They also averred that the Bank purported to issue a statutory notice of sale dated 6th May, 2011 when it knew or ought to have known that the deceased had died on July 27, 2009 and no grant of letters of administration to her estate had been issued.

5. The 1st and 2nd respondents maintained that no sale by public auction took place on that day and sought cancellation of the transfer of the suit property to the appellant; they also claimed that the suit property was sold at a gross undervalue without regard to its market value and that the Bank failed to render a true and proper account of the 4th respondent’s indebtedness secured by the charge and further charge. They sought general damages, costs of the suit and interest thereon.

6. The Bank admitted advancing credit facilities to the 4th respondent which was secured by the charge and further charge over the suit property; that it offered to increase the limit of the financial facility advanced to Kshs 5. 6 million which offer the 4th respondent accepted. The Bank denied the particulars of fraud set out and maintained that it duly served a statutory notice and lawfully exercised its statutory power of sale on September 14, 2011 whereby Kshs 15. 3 million was realized from the sale of the suit property to the appellant.

7. In its defence, the appellant stated that it attended the auction conducted on September 14, 2011 and purchased the suit property as the highest bidder.

8. The 1st respondent’s case was that he was the administrator of his late mother’s estate; that the Bank fraudulently advanced further monies to the 4th respondent without security and purported to extend this new debt to the charge and further Charge without the consent of his late mother; that the Bank and the 4th respondent forged his late mother’s signature to make it appear that she had guaranteed the further loan facility advanced to the 4th respondent; that the 4th respondent owed his late mother and her estate a legal duty to repay the loan so that his late mother’s title over the suit property could be discharged but that he breached this obligation or acted indifferently to the potential loss his late mother’s estate would suffer if the Bank exercised its statutory power of sale.

9. It was his evidence that they communicated to the Bank that there was no person who could validly represent the estate of his late mother but the Bank purported to have served a statutory notice dated May 6, 2011. He faulted the Bank for not applying for letters of administration over his late mother’s estate as a creditor and failing to release the details of the debt for purposes of having this included in the petition for letters of administration.

10. The 1st and 2nd respondents called Martin Esakina Papa, the document examiner who examined the signatures of the deceased appearing on the bank documents. The expert witness produced a report in which he concluded after examining the specimen signatures that the signatures on the charge documents and the one appearing in the other documents were not made by the same hand.

11. On its part, the Bank called Boniface Muchoki as a witness. He produced various documents including the Charge, Further Charge, correspondence exchanged and a copy of the 4th respondent’s bank statements for the loan account. It was his evidence that the Bank did not owe the 1st and 2nd respondents the responsibility of providing a statement of account without them demonstrating an interest in the suit property.

12. The 4th respondent on the other hand gave evidence that there was an extension of the facility as pleaded by the 1st and 2nd respondents; he admitted that he still owed the Bank money and that he gave the bank a plan on how he was going to repay the loan; that his late mother was present when the overdraft facility was executed; that the deceased did not sign the extension of the overdraft facility since it was a renewal of an existing facility; that he continued to repay the loan but denied being issued with a notice by the Bank of its intention to sell the suit property.

13. He further testified that the Bank changed the facility from a loan to an overdraft; that he decided to change the loan to an overdraft facility since he had many loans with other banks so that he could pay off the interest on the loan account; he blamed the 1st and 2nd respondents for going to the Bank and demanding the return of the title document over the suit property arguing that this is what made the Bank refuse to renew the overdraft facility which adversely affected his business and repayment of the loan.

14. The appellant’s witness stated that he attended the auction held at the Kiambu General Post Office on September 14, 2011 and bid for the suit property; he emerged the highest bidder and paid Kshs 6. 3 million on the same date; that they were given a memorandum of sale of property on September 15, 2011 and later paid the balance of Kshs 8. 9 million; they paid the stamp duty and other fees amounting to Kshs. 612,040 on February 9, 2012 and title over the suit property was issued in the appellant’s name.

15. After hearing the parties and considering the evidence placed before the court, the learned Judge found the main issue for determination to be whether a valid sale of the suit property took place.

16. The court referred to the proviso to section 82(b) of the Law of Succession Act which states that no immovable property shall be sold before the confirmation of the grant and section 66 of the same Act which gives a guide of the order of priority of the persons to whom the court can make a grant of letters of administration where a deceased died intestate. The court noted that creditors such as the Bank rank fourth after the surviving spouse, other beneficiaries and the Public Trustee. The court opined that as a creditor, the Bank could have applied for grant of letters of administration over the estate of the chargor, the late Jane Wanjiru Kagunda to enable it realize the suit property.

17. The court noted that the Bank submitted that it issued a demand on December 29, 2009 indicating that there was default and requiring the regularization of the account; that it also issued a statutory notice on July 22, 2010 to the 1st and 2nd respondents demanding payment of Kshs 6,944,590 while giving the 1st and 2nd respondents three months to make payment failing which it would exercise its statutory power of sale.

18. The Bank had argued that the 1st and 2nd respondents were estopped from denying that they had capacity to receive the statutory notice since the Bank acted on their representation when granting them the waiver of Ksh 2 million and deferring the public auction when they requested for time to settle the loan. It further argued that the 1st and 2nd respondents did not dispute the fact that the loan secured by the Charge and further Charge had not been repaid in full hence the exercise of its statutory power of sale cannot be challenged.

19. The court found that the auction carried out on September 14, 2011 on the Bank’s instructions was in contravention of sections 45 and 82 of the Law of Succession Act, the chargor, Jane Wanjiru Kagunda having died on 27th July, 2009 and the letters of administration over her estate not having been confirmed as at September 14, 2011 when the suit land was disposed of at the auction. Consequently, the court gave an order cancelling the appellant’s title over LR No Ndumberi/Ndumberi/1234.

20. Aggrieved by the above findings, the appellant proffered the instant appeal by filing a Memorandum of appeal premised on grounds, inter alia, that the learned judge erred in law in granting the order cancelling the appellant’s title; in law and in fact in failing to consider or appreciate evidence that the appellant was a bona fide purchaser for value without notice; the Judge erred in law and in fact when she failed to evaluate and appraise the case by the 1st and 2nd respondents about undervaluation, which was untrue and contrary to the evidence on record.

21. Further grounds were that the judge misdirected herself on the applicability of sections 45 and 82 of the Law of Succession Act; the Judge erred in law and in fact in failing to appreciate that the charge to the 3rd respondent created an interest in the land securing loan repayment and was subject to section 77(3) and 77(4) of the RLA; sanctioned approbation and reprobation by the respondents in requesting for and receiving the balance of the proceeds of sale from the 3rd respondent and simultaneously taking steps to rescind the sale to the appellant by instituting the suit to cancel the appellant’s title in the suit parcel; sanctioned unjust enrichment by the 1st and 2nd respondents in retaining part of the proceeds of sale of the suit parcel and cancellation of the resultant transfer to the appellant.

22. The appellant has filed submissions in which submits that the decision cancelling its title to the suit premises was granted without any valid claim levelled against the appellant or tendering of credible evidence to prove any claim against the appellant to warrant the cancellation; that no claim was advanced, within the parameters of section 26 of the Land Registration Act, or evidence tendered implicating the appellant before the court, to form the basis for cancellation of the title, and the Order made to cancel the appellant’s title was in consequence, arbitrary and made in complete disregard of the Law.

23. The appellant sought to rely on the case ofPatrick Kanyagia & another v Damaris Wangeci & others, Civil Appeal No 150 of 1993 [1995] eKLRfor the proposition that where attempt was made to allege fraud against the purchasers but without any particulars of fraud, it does not alter the legal position that the mortgagee exercising its statutory power of sale extinguishes the equity of redemption when the contract for sale is signed on the date of sale by auction; that the tenor of the judgment was a miscarriage of justice as the suit and substance of complaint were directed against the 3rd and 4th respondents, but the relief granted paradoxically placed the burden against the appellant, infringing its constitutionally entrenched rights to fair hearing, due process, safeguard against arbitrary deprivation and denial of protection of the Law.

24. It further submits that subsequent institution of the suit, by the 1st and 2nd respondents was reprobation and amounts to a design for unjust enrichment by; retaining proceeds of sale of the suit property; cancelling the sale to the appellant and recovery of the suit property and discharge of Charge by the 3rd respondent, all sanctioned by the High Court decision.

25. The 3rd respondent has also filed submissions and urges that for the trial court to cancel the registration of the title in the name of the appellant as it did, it was required to satisfy itself that the provisions of section 143 of the Registered Land Act were satisfied; that no evidence was adduced during the hearing of the suit showing that the appellant had knowledge of any omission, fraud or mistake or caused such omission, fraud, or mistake or contributed to it, and no such finding was made.

26. It further submits that by ordering cancellation of the appellant's title over the suit property, the trial court failed to take into account the provisions of sections 28, 39 and 143 of theRegistered Land Act (cap 300) (repealed) which was the applicable law and/or acted contrary to the said provision of law; that the trial court erred in not finding that the appellant was a bona fide purchaser for value from the 3rd Respondent; that the appellant being a bona fide purchaser for value without notice acquired a good title from the 3rd respondent; that in the circumstances, the court erred in ordering cancellation of the appellant's title when the appellant was not privy to any irregularity prior to the sale by public auction.

27. Placing reliance on the case of Housing Finance Company of Kenya v J N Wafubwa [2014]; the 3rd respondent urged that it did not act in contravention of sections 45 and 82 of the Law of Succession Act as the suit property was not free property of the deceased, in view of the registered charge and further charge which had been registered against the property and had not been discharged as such.

28. The third respondent posited that the learned Judge erred in not finding that the 3rd respondent had acted on the representation of the 1st and 2nd respondents who were acting on behalf of the deceased’s estate, and they were estopped from complaining about the invalidity of the statutory notice issued to them.

29. In addition, it was submitted that the doctrine of relation back applies to the circumstances of this case; that by failing to reprimand the actions of the 1st and 2nd respondents, the trial court in essence sanctioned their misrepresentation to the 3rd respondent, thereby allowing them to approbate and reprobate on the issue of their authority to act for the Estate of the deceased; that the trial court maintained a studious silence in the judgment regarding the conduct of the 1st and 2nd respondents, the applicability of the doctrines of estoppel and relation back in the circumstances of the case thereby resulting in a miscarriage of justice.

30. Lastly, the 3rd respondent submits that it forwarded the balance of the proceeds of sale to the 1st and 2nd respondents at their request; that while still retaining the said amount they instituted a suit seeking cancellation of the appellant's title to the suit property; that the learned Judge fell into error in failing to note that the 1st and 2nd respondents would be unjustly enriched through taking possession of the suit property and also retaining the balance of the proceeds of sale following sale by public auction.

31. The appeal proceeded virtually with appearance of counsel whereby learned counsel Mr Njoroge Baiya appeared for the appellant; Simiyu Wabuge for the 1st and 2nd respondents and Hiram Nyaburi appearing for the 3rd respondent. Although duly served with the hearing notice, there was no representation from the firm of Onindo & Co Advocates on record for the 4th respondent. They did not file any submissions either. Mr Baiya and Mr Simiyu adopted their written submissions and made some oral highlights while Mr Nyaburi relied on his written submissions without any oral highlights.

32. I have considered the record of appeal before the court along with the rival submissions by learned counsel and the relevant law. I will now re-evaluate the evidence in its entirety, as this court is enjoined to do by rule 29(1)(a) of this court’s rules and make my independent findings as to whether the appeal can be sustained or not. The relevant facts in this matter are largely uncontested and the appeal hinges mainly on issues of Law.

33. On whether the acts of the 3rd respondent in seeking to exercise the chargees’ statutory power of sale was unlawful, section 90 of the Land Act states;(1)If a chargor is in default of any obligation, fails to pay interest or any other periodic payment or any part thereof due under any charge or in the performance or observation of any covenant, express or implied, in any charge, and continues to be in default for one month, the chargee may serve on the chargor a notice, in writing, to pay the money owing or to perform and observe the agreement as the case may be.(2)The notice required by subsection (1) shall adequately inform the recipient of the following matters—a)the nature and extent of the default by the chargor;b)if the default consists of the non-payment of any money due under the charge, the amount that must be paid to rectify the default and the time, being not less than three months, by the end of which the payment in default must have been completed;c)if the default consists of the failure to perform or observe any covenant, express or implied, in the charge, the thing the chargor must do or desist from doing so as to rectify the default and the time, being not less than two months, by the end of which the default must have been rectified;d)the consequence that if the default is not rectified within the time specified in the notice, the chargee will proceed to exercise any of the remedies referred to in this section in accordance with the procedures provided for in this sub-part; and the right of the chargor in respect of certain remedies to apply to the court for relief against those remedies.Section 92(2) of the Land Act states;2. Before exercising the power to sell the charged land, the chargee shall serve on the chargor a notice to sell in the prescribed form and shall not proceed to complete any contract for the sale of the charged land until at least forty days have elapsed from the date of the service of that notice to sell. (Emphasis supplied)

34. Since the 1st and 2nd respondents denied service of the notice by the 3rd respondent, the burden was on the Bank to show that it complied with the law by serving it. In Nyagilo Ochieng &anotherv Fanuel Ochieng & 2others [1995-1998] 2 EA 260, this court held that the burden to show that the statutory notice has been served does not in any way rest on the chargor. Once the chargor alleges non-receipt of the statutory notice, it is for the chargee to prove that such notice was in fact served.

35. However, section 90 of the Land Act must be given a purposive approach. In the case ofFirst Choice Mega Store Limited v Ecobank Kenya Limited [2017] eKLR, the court held:“…the general purpose of a notice to a chargor under section 90 is majorly to protect the chargor. The law regulates the contractual relationship between the parties by ensuring that the purpose of a charge is not defeated. The purpose is mainly for the property to act as security and no more. The chargor must have the chance, nay right, to redeem the property. In the absence of a notice it would be much easier for unscrupulous chargees to rid the chargor of the equity of redemption. The borrower who pledges and charges his property must be confident that the property will be held as security and when the lender must then act and start the process of selling the same, the borrower will have both notification of such action and an opportunity to redeem his property.”

36. In Cieni Plains Company Limited & 2 others v Ecobank Kenya Limited[2017] eKLR, the court held:“Thus, even though section 90 appears couched in mandatory terms, its object and purpose can never be ignored. Where there is substantial compliance with the section, enough to put the chargor on notice of the chargee’s ultimate intentions if the notice is not heeded, then such substantial compliance will be deemed to have countenanced any alleged deviation, especially at an interlocutory stage. This is however not to suggest that even where there is patent non-compliance, the court will ignore that fact. Every case ought to be considered on its own merits and unique circumstances …” (Emphasis added).

37. In my view, this is not a typical run off the mill case where the Bank is being accused of not serving the statutory notice as required in law. The circumstances are unique in the sense that the Bank did communicate the default to the 1st, 2nd and 4th respondents prompting the 1st and 2nd respondents to approach the Bank and seek more time to settle the debt. Indeed, the 1st respondent in his witness statement before the trial court said that the statutory notice was served on him on May 6, 2011 but he disputes validity of such service because he was not by then an administrator of the deceased’s estate. These facts are not disputed by the 3rd respondent.

38. This did not, nonetheless, exonerate the Bank from its responsibility to serve the statutory notice as prescribed by Law. Service was done but it was irregular and contrary to the law as the notice was served on the wrong parties with full knowledge on the part of the Bank that the chargor was deceased. What then is the appellant’s recourse?

39. Section 99 of the Land Act, Number 6 of 2012 provides;1. This Section applies to -(a)a person who purchases charged land from the chargee or receiver, except where the chargee is the purchaser; or(b)a person claiming the charged land through the person who purchases charged land from the chargee or receiver, including a person claiming through the chargee if the chargee and the person so claiming obtained the charged land in good faith and for value.2. A person to whom this section applies—(a)is not answerable for the loss, misapplication or non-application of the purchase money paid for the charged land;(b)is not obliged to see to the application of the purchase price;(c)is not obliged to inquire whether there has been a default by the chargor or whether any notice required to be given in connection with the exercise of the power of sale has been duly given or whether the sale is otherwise necessary, proper or regular.3. A person to whom this section applies is protected even if at any time before the completion of the sale, the person has actual notice that there has not been a default by the chargor, or that a notice has been duly served or that the sale is in some way, unnecessary, improper or irregular, except in the case of fraud, misrepresentation or other dishonest conduct on the part of the chargee, of which that person has actual or constructive notice.4. A person prejudiced by an unauthorized, improper or irregular exercise of the power of sale shall have a remedy in damages against the person exercising that power. (Emphasis supplied)See also this court’s decision in Nancy Kahoya Amadiva v Expert Credit Limited & another [2015] eKLR.

40. This section seems quite clear that a purchaser of property sold in the exercise of a chargee’s statutory power of sale is protected even in cases where the person had actual notice that the chargee had not properly exercised that statutory power of sale in terms of procedure. In this case, there is no evidence to show that the appellant had any notice of any irregularities in the planned sale and evidence suggests that there were none anyway. The point is that the appellant is then inoculated by section 99 (supra) from any action to recover the suit property from it.

41. Even assuming that the auction was not properly conducted as alleged by the 1st and 2nd respondents, unless it is demonstrated that the appellant was privy to the fraud or other irregularities in the disputed auction, the sale of the suit property cannot be impugned. This court in Captain Patrick Kanyagia and Another v Damaris Wangeci and thers, (supra) held that there is no duty cast, in law, on an intending purchaser at an auction sale, properly advertised, to inquire into the rights of the mortgagee to sell. This position was also reiterated by this court more recently in David Katana Ngomba v Shafi Grewal Kaka [2014] eKLR. From the foregoing, it follows that there was no proper basis for holding that the auction done was unlawful or irregular. Consequently, there was no reason to nullify it, and no reason to make an order that the title to the suit property reverts to the 1st and 2nd respondents.

42. Given this conclusion, it follows that the orders granted by the learned judge nullifying the sale conducted through public auction cannot stand. There are two reasons why those orders were and remain problematic. First, the appellant herein remains immunized against the actions of the Bank during and after the public auction. Indeed, given the effect of section 99 of the Land Act, the logical position would have been not to nullify the sale. Second, it is tantamount to unjust enrichment on part of the 1st and 2nd respondents since they get to make away with both the suit property and the surplus of the sale proceeds that the Bank handed over to them.

43. The elements of unjust enrichment require that a party who has received a benefit unjustly, is required to make restitution to the other party. It presupposes that:-a)A party has been enriched by the receipt of a benefit;b)That he has been so enriched at the expense of the giver; andc)That it would be unjust to allow him to retain the benefit.

44. This principle was applied in the case of Madhupaper International Ltd & another v Kenya Commercial Bank Ltd & 2 others [2003] eKLR where the court stated:“--- the idea of unjust enrichment or unjust benefit is intended to prevent a person from retaining money or some benefit derived from another which it is against conscience that he should keep it, and he should in justice, restore it to the plaintiff.”See also Civil Appeal No 8 of 1987, Chase International Investment Corporation & another v Laxman Keshra & 3 others [1978] eKLR,

45. The undisputed facts in this case are that the 1st and 2nd respondents;a.Informed the Bank that their mother/the guarantor had died;b.Commenced negotiations with the Bank on behalf of the Estate with full knowledge that they lacked that capacity as they did not have Letters of Administration at that point;c.Accepted the statutory notices but not in the name of the chargor.d.Received some proceeds from the auction.

46. In the light of non–contestation of the above facts, the scales of justice, in my view, tilt in the appellant’s favour. It is a truism that he who comes to equity must come with clean hands. The suit in the superior court should have failed the moment the court found the respondents’ hands to be heavily tainted.

47. The judgment and Orders of the ELCthat the suit property to reverts to the estate for the obvious benefit of the 1st and 2nd respondents and the other beneficiaries of the estate and allowing them to retain the amount paid to them by the Bank amounted to unjust enrichment which our justice system frowns upon.

48. The Bank too is at fault. They were and still are well endowed with a panel of lawyers to advise them, internal lawyers on stand by and the experience and expertise that comes with having dealt with similar situations in the past. But that notwithstanding, the Bank proceeded to;a.Deal with the 1st and 2nd respondents despite not having seen a Grant of Letters of Administration to confirm that they were the legally appointed administrators of the estate of the deceased, capable of negotiating with the Bank on behalf of the Estate having full knowledge of the death of the owner of the suit property;b.Having the option of applying for the grant of letters of administration themselves as creditors but opting not to.c.There is also that damning report produced by the document’s examiner who confirmed that the signatures on the further charge documents which were purported to belong to the deceased were actually different from the ones appended by the deceased in the original Charge. How this could have happened, only the Bank can tell.To say the least, the Bank in this case abdicated its fiduciary duty to the deceased in her death and engaged in acts that were clearly unbecoming of an institution of the 3rd appellant’s stature and repute.

49. I nonetheless wish to clarify that other than serving the statutory notice on parties with no legal capacity to receive them, thus rendering such service invalid, the Bank was not an intermeddler as prescribed under section 45 of the Law of Succession Act as the property in question was not part of the deceased’s “free estate”, it having been charged to the Bank to secure a loan which had still not been repaid in full.

50. The recourse available to the 1st and 2nd respondents, in my view, lies in pursuing the bank for damages as per section 99(4) of the Land Act. From the record of appeal, there were arguments by the 1st and 2nd respondents that the suit property was undervalued during the sale. They have a good chance of pursuing the Bank for the difference in value, if at all proved and for any other damages they may claim to have incurred.Considering all the above, I am convinced that this appeal ought to be allowed. I would therefore allow it with costs as against all the respondents jointly and or severally. I would set aside the impugned judgment and all consequential orders arising therefrom and substitute therefor an order dismissing the 1st and 2nd respondents’ claim in ELC No 328 of 2013 with costs.

DATED AND DELIVERED AT NAIROBI THIS 28TH DAY OF APRIL, 2022. R N NAMBUYE......................................JUDGE OF APPEALHANNAH OKWENGU......................................JUDGE OF APPEALW. KARANJA......................................JUDGE OF APPEALI certify that this is a true copy of the originalSignedDEPUTY REGISTRAR